School OneIf you run a small (i.e. a director and sole employee) service company for example, in order to claim anything over £4 p. w. for a home-as-office you must have a need to carry out a substantive percentage of your employment duties from your home-office and should not be able to carry out the same duties at your client’s site. If you could work at the client’s site but choose to work from home instead this will not count in your favour. However, if your home-office is your main place of work then you are allowed to claim additional expenses incurred for:
- Gas / electricity;
- Metered water costs (but not if you have a fixed charge for water rates);
- Business phone calls (including dial up internet access).
School TwoAs per Section 34 of ITTOIA the self-employed or an individual seen as self-employed under the guidelines can claim a proportion of expenses for use of their home-as-office. The list of expenses and the proportion of that expense that can be claimed can be found on the DNS use of home-as-office calculator. Under this approach a proportion of the total expenses associated with your home-as-office can be calculated alongside the amount of usage, so the amount depends on a calculation of the percentage of space and usage, which you can work out using of the DNS home-as-office calculator. To read more about School Two, follow the link to HMRC
So what is the conclusion regards home-as-office expenses?
Based on plain reading, it would appear that only the self-employed can claim home-as-office expenses and not directors of limited companies. However, DNS strongly believe that many directors of small companies do use their home-as-office extensively for business use and that, therefore, these individuals can be classified as self-employed according to this school of thought. We believe that among DNS contractors and small business, many use their home-as-office extensively and, therefore, do make substantive use of their office at home. This means that many small businesses are in fact in this context "self-employed" and, therefore, can use the guidance under School Two, although, be warned, in the future there may be a risk of an HMRC backlash. However, even in the worst-case scenario, HMRC may disallow the additional claim for use of home-as-office, but that said we have found HMRC to be flexible in the last couple of investigations. It is not, therefore, a huge issue that you need worry unduly about. To put all this in a nutshell: those who make substantive use of their home-as-office can use School Two, concluding that the home-as-office is the place where they most often carry out their employment duties. This means that small business owners that make substantive use of their home-as-office are well within their rights to claim regular expenditure. On the other hand, if in all honesty you rarely or in effect hardly ever use your home-office, then we recommend that you err on the side of caution and stick to £4 p. w. I hope this has clarified the position with home-as-office allowances. Please feel free to contact your account manager if you have any further questions relating to this or any other matter concerning your business.