If you are working from home you may be able to claim back living expenses depending on your circumstances. The costs you can claim include:
- Mortgage – You can claim a proportion of the interest on your mortgage but not the capital repayment
- Rent – Although you can’t charge your business for rent because you are the business, you may be able to claim a fraction of the rent for your premises if you are renting from a landlord
- Council Tax – Depending on how much you use your home for your business you will either be able to claim an amount back for your council tax or are required to pay business rates instead
- Light and heat – Businesses can claim a proportion of any gas and electricity costs for lighting and heating in the room(s) used for work
- Telephone and broadband – The amount you can claim is calculated on your business usage rather than the number of rooms in your home. Businesses can claim full cost of line rental for business use and depending on how much is used for business and personal use, a proportional of the line rental is also available to claim.
- Home repairs – If a property repair is required for the area that’s used for business, you can include the full costs in your accounts, subject to the use of the room for business purposes.
- Water – If your business solely relies on your water supply, for example a car cleaning service, you would need to apply separately through your water supplier for this to be separately charged in order to claim the full cost. However you can’t claim any of the cost for water if your usage is only minor.
Calculating costs that you can claim as a homeworker can be difficult for most business owners. We highly recommend that you consult an accountant for further advice on what you can claim and how to implement these contributions into your financial accounts.
Keeping track of records
It is highly advised that you keep all of your receipts from your business safe as proof of purchase and for future VAT inspections. Receipts can easily be stored electronically using cloud accounting software, including Xero and Kashflow. Using an accounting software will allow for easy and safe storage without the risk of losing important receipts. It also makes it easier to gather all business transactions in one place for the end of year accounts.
For startups that may not be able to afford cloud accounting packages, Microsoft Excel or Google Sheets is a simple alternative for small businesses to keep track of expenses and income while budget is low.
Home working vs. Office Working
Claiming costs for rent, utility usage and property maintenance are just some of the reasons why choosing to work from home may be a better option for some entrepreneurs. Not to mention, you will be working in an environment you’re already comfortable in. However there are some disadvantages associated with home working and these should be taken into consideration before making big decisions:
- Is there a designated space in your home to run a business? Working from your kitchen table could be stressful if business begins to boom. Garden offices have become an increasingly popular trend for home workers.
- If the business expands, will you have the capacity to employ staff members? Before hiring your first employee in your home office, you should take time to consider whether your home can accommodate an additional team member.
Office working gives you the separation needed from your personal life and your career as an entrepreneur and business owner. There are still some clear benefits that overrule the decision to work from home, these include:
- Choice of location and office size with the ability to personalise the office for your brand
- Opportunity to expand and employ team members
- Professional location for client meetings if required
- No interruption from family members
Although renting a commercial property can have its downfalls:
- Extra rent to pay on top of your home residence. Is this possible as a startup with restricted budget?
- An additional set of utility bills to run your commercial property
- An agreement to rent the property for a lengthy term. If business fails, is there enough funds to continue to rent the property?
By Mariah Tompkins, Director of WKM Accountancy Services