Today we’re talking utilities. If you’re reading this while sitting at the kitchen table with the washing machine going on in the background and wearing a freshly ironed shirt and a PJ bottom combo, this blog’s for you! One of the big pros for hybrid or remote working is, well, working from home! One of the cons, though, is the spike in your utilities. Electricity, internet, heating and more – how do you reflect these costs in your tax returns, and what is the official HMRC policy about claiming for these higher home expenses? Let’s discuss:
Good News: You Can Claim Home Expenses
HMRC recognises that if you are self-employed, working from home or having a business or workshop at the same place you live will result in higher utility bills. You are allowed to claim these higher costs as business expenses, but there is a catch. There’s always a catch. You cannot claim the entire bill as a business expense, and you have to be diligent about the method you choose to measure how much you are allowed to claim. There are two different methods to help you decide what percentage of your final bill can be claimed as a business cost.
Option 1: Flat Rate Utilities
This is the easiest and most straightforward method. If you are self-employed, HMRC allows you to claim a flat rate allowance based on how much time you spend working from home. You can read the policy direct from HMRC here. But simply put, the guideline is as follows:
- 25-50 hours per month = £10 credit
- 51-100 hours per month = £18 credit
- 101+ hours per month = £26 credit
This is the total amount to cover all home utilities (electric, water, heating, etc.) except telephone and internet (see option 2 for these). So yeah. It’s nothing to get excited about. But every little bit helps, right? We reckon the flat rate scheme would definitely suit freelancers and other self-employed professionals who maybe don’t have a fixed amount of time at home. It’s just a little extra relief you can donate to the biscuit tin.
- Pros: It’s easy and guaranteed. The likelihood of an audit questioning this is very low.
- Cons: It’s a bit dinky. The credit certainly isn’t going to swoop in and save your heating bills.
Option 2: Tracking the Clock
This is exactly what it sounds like. Keeping (reliable) records of the amount of time you spend working at home and then calculating the corresponding amounts from your utility bills. This can get tricky. For example, if you use 1 room out of 5 for business half the amount of time you’re home, then that’s 10% of the electric bill you can claim as an expense. Internet and telephone can also be claimed in this manner together with the flat rate in option 1.
- Pros: You could probably claim a larger amount of money against your final bills.
- Cons: Its fussy, its tricky and be prepared for good record-keeping if HMRC comes sniffing around.
Important Home Expense Reminders
- The above is slightly different if you are an employer. As an employer, you can provide your employees who work from home a monthly flat rate of £26 without any benefit-in-kind implications. So if you are a director of a small limited company, you can pay yourself this additional amount each month tax-free.
- Depending on your business and how you work, it’s probably in your interests to get a savvy accountant on your side to do the sums for you.
We have quite a number of clients who either work exclusively from home or spend a large chunk of admin time at home. We like to take a proactive approach to helping them understand which option best suits their situation and helping them with records if they choose the manual tracking method.
Don’t fancy a frigid home office this winter? Get in touch for a free meeting. We might just be able to help take the edge off those high bills.
