If you’re self-employed and work from home, you can claim plenty of costs as allowable expenses. That can add up to big savings.
Let’s say you’re a sole trader with a revenue of £30,000 per year. Without claiming expenses you’ll be paying tax on all of that money, less the tax-free allowance currently set by the government at £11,000.
So, your taxable income would rest at £19,000. Now, let’s say your annual allowable expenses came in at £2,000. You would then only pay tax on the remaining £17,000, which would be referred to as your taxable profit.
That’s not something that many work-from-homers would like to miss out on. Here’s how to calculate your working from home expenses in three steps:
Step 1: count up your ‘normal living spaces’
HMRC currently states that you can put part of the expenses associated with your ‘normal living spaces’ into your calculations.
Essentially, that means counting up the rooms in your house. This will include the kitchen, bedrooms, living room, study and other such rooms. Areas like closets, toilets, and hallways cannot be included.
Step 2: calculate the percentage of time you spend working in each room
Now you have your normal living spaces added up, it’s time to estimate how much time you spend working in each one. It’s next to impossible to calculate this down to the minute, but rough calculations will work.
For example, you might spend around five hours each day working in the living room and five hours using it in your leisure time; you would therefore be spending 50% of your time in that room for work.
Step 3: work out the bills for each room
Finally, you can calculate the percentage of each bill that is going towards each room, then deduct the percentage used for work.
If you have five normal living spaces, then you’d divide each bill by five. For the example provided above, you would divide your bills by five to reach the percentage spent on the living room, then divide that amount by two to reach your work-related expenses.
If you tend to work in your home’s largest room, it can pay to divide by floor space instead of simply by the number of rooms. Either method of division is considered acceptable.
Calculate your working from home expenses: in conclusion
You can now add up the work-related expenses shown by each bill and then claim them as allowable expenses. As well as electricity and gas, remember to include bills covering costs such as your internet and your landline.
Working out these costs might seem like a bother, but following the steps listed above makes it much easier.
If you’d like to talk to an expert about how to calculate your working from home expenses, get in touch with us today – we’d love to help.