My residential address is my office. Can I offset expense of living there against tax

safeguard

As I work from my residential address which is effectively an office, can I offset my living expenses such as mortgage payments and bills against my tax payments?

PlutoinCapricorn

Are you asking as an employee on PAYE who is required to work from home, or as a Sole Trader i.e. registered self employed? The rules are different for these two cases.

McKneff

Think you ve got that the wrong way round.

Your office is at your residential address. Not your residential address is at your office.

safeguard

Just to clarify, I work as a sole trader and my office is at my residential address. In other words, I work from home.

PlutoinCapricorn

There is more scope here for a home based sole trader than there is for an employee. Many such people do deduct a proportion of their domestic costs from their self employment income to reduce their taxable profit. Mortgage interest or rent, council tax, service charges if any, electricity, water, broadband and telephone are all candidates for this.

You have to come up with some figures that you could justify if HMRC decided to enquire about your expenses. For shared facilities such as a telephone, you need to estimate how much is business and how much is personal use. Some people count the number of rooms, excluding kitchen and bathroomto arrive at the proportion for the office. These links might be useful: it is best to go to the source of the rules:

SE expenses CTAXwww.hmrc.gov.uk/manuals/bimmanual/BIM46840.htm
SE expenses: running costswww.hmrc.gov.uk/manuals/bimmanual/BIM47815.htm
SE expenses: what to claimwww.hmrc.gov.uk/manuals/bimmanual/BIM47820.htm
SE expenses: examples
www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htmwww.hmrc.gov.uk/manuals/bimmanual/bim47800.htm

safeguard

Thanks very much for the links which are very useful.

PlutoinCapricorn

Some of it doesn't make sense to me: of course if you are home based you will use more electricity and water, but you would have to pay council tax anyway!

You are not expected to monitor the electricity use very closely, just come up with a reasonable estimate of the proportion used in the 'office'. This would be higher than that claimed by a self employed person who was on site all the time.

Just keep all the bills and evidence of payment in case of an enquiry, the same way that you do for receipts. I keep a spreadsheet with income and expenses recorded monthly, so when the time comes to file the return, it is just a matter of transferring totals.

chrismac1

Well if you work in an office at home more than about 5 hours per working day, you could equally well be renting office space just down the road. So in my view it is fair enough that you get to claim council tax as well as utilities. Now let's suppose you are claiming £10 per week which is unusually high, call this £500 per year. Before the rental for your own home let's say your tax bill is £10k, now it will be £9,900.

The best commercial rental you'd get a round here would be £200 a month for very basic small office. You now claim 2,400 for the rental and your tax bill is £480 less instead of £100. So using your own home is a win-win for you and the country. The only loser here is the commercial landlord who might have been £200 a month (less tax!) better off.