Use of home as office

By Tolley

(Updated for Budget 2020)

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Use of home as office
Self-employed
Deductions for expenses under the general rule
Deductions for expenses under the fixed rate rules
Employed
Tax planning for employees and partners in a partnership

Many people work from home either on an informal or a full-time basis. These people can be employed or self-employed, and their employment status affects the expenses they can claim as a deduction from their earnings.

When dealing with someone working from home, it is important to remind him that although exclusive business use of part of the house may allow him to claim tax relief for more of his household expenses, it will restrict his capital gains tax relief on the sale of the house. This is discussed further in the Principal private residence relief ― anti avoidance guidance note.

Normally, there will be no liability to business rates if the room(s) used for the business is also used domestically. If a significant proportion of the property is used exclusively, or almost exclusively, for business, then business rates may be payable. The council tax banding on the remainder of the property may also need adjustment. For more on business rates, see the GOV.UK website.

Self-employed

The general rule for allowing revenue expenses against self-employed earnings is that the expenses must be:

•not capital in nature, and

•wholly and exclusively for the purposes of the trade (the non-business proportion of the expense is disallowed)

ITTOIA 2005, ss 33, 34

The general rule is applied to the different types of expenses home workers might incur. With most home expenses, this means that the allowable deduction will be the amount of the expense which relates to the homeworking (eg 10% of the electricity bill, for example).

For more discussion on the general rule, see the Trading income and expenses guidance note.

However, from 2013/14 onwards, fixed rate deductions were introduced for the self-employed in order to reduce the administrative burden, although the fixed rate deductions may be lower than the deductions available under the general rule.

Expenses under the general rule and the fixed rate deductions rule are considered below.

Deductions for expenses under the general rule Travel expenses

When considering whether travelling costs of home to work and