Are you aware of the tax implications and benefits of working from home? If you are considering operating your business from home, then you can find out everything you need to know by reading below.

What do I need to know?

If you are thinking of starting up a business, then the best solution may be to start-up from home, as this is the least risky and most cost-effective solution to get your business up and running.

If you are currently working from home as a freelancer or considering doing so, then you should be aware that there are some tax implications.

You should consider capital gains tax compliance and the business’s expenses before you decide whether working from home is the right decision for you.

What are the benefits?

If you work from home, then you are probably aware that there are many benefits, as you can control your working environment to suit you and your needs. It also saves a lot of time as there will be no need to commute to the workplace. 

You can also claim business expenses for the running of the business whilst working from home.

There are also many benefits if you are an employer and your employees chose to work from home, as this will require less office space so rent and operating costs would be a lot cheaper.

What do I need to know about my business expenses?

The purpose of business expenses is to allow business people to deduct expenses from their turnover to give a more clear view of the profits, which will reduce the tax bill.

If you are working from home, then it can be difficult to decide what expenses are classed as business expenses.  

The basic rule states that it is an allowable business expense if it is incurred ‘wholly and exclusively’ in running the business.


It would be very difficult to know exactly how much electricity you are using for personal use and what you are using for the business.

If you are unsure as to how much of your electricity has been used for your business, then do not just try to reclaim the whole amount of the bill.

You should make a sensible estimate of how much applies to the work of the business.

Make sure that you keep records of the expenses and how your calculations in case they are queried by the Revenue.  

What expenses can I claim?

As accountants, HMRC’s Business Income Manual is our bible, as this specifies everything that can and cannot be claimed as a business expense.

What can be claimed:

  • Rent
  • Council tax
  • Repairs and maintenance
  • Metered water charges
  • Cleaning
  • Mortgage interest

You should keep in mind that the Revenue will only accept claims that are for business purposes, so a careful estimate must be calculated before submitting the claim.

What is the flat-rate system?

HMRC introduced the flat-rate system in 2013 to simplify the expense claims process.

The flat-rate system allows you to make a claim based upon the following thresholds:

  • 25 to 50 hours of business use= £10 flat rate per month
  • 50 to 100 hours of business use= £18 flat rate per month
  • Above 100 hours = £26 flat rate per month

You should be aware that this only applies to utility bills.

Capital gains tax

Keep in mind that if you have a room in your property that you use solely as an office, this will reduce your capital gains tax relief when you sell the property.

This will not be eligible for tax relief as it would not qualify as a ‘private residence’.

So, it may be worthwhile to have a combined office and guest bedroom.

Further Actions

Do not be put off by the complexities of working from home as there are many benefits. You should take time to think through the worst-case scenarios that may occur so you can weigh up whether it is worth working from home or not.

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