15 tax expenses you can claim if you’re a sole trader running your business from home

Do you run your sole trader business from your home? It’s very popular. Some 2.9m businesses in the UK are believed to be run from the owner’s home and they contribute more than £300bn to the economy. Almost three quarters of all new UK businesses are started and run from the owner’s home.

One of the great benefits of running a sole trader business from your home is it can save you lots of money. Taking on premises creates a significant monthly overhead, one that you won’t have if you run your business from home. And you can claim a proportion of your domestic bills as tax expenses, which you deduct from your sole trader income to reduce your tax bill.

What are sole trader “allowable expenses”?

As the name suggests, allowable expenses are sole trader costs that HMRC allows you to claim as tax expenses. To be allowable, they must be generated “wholly and exclusively” for business purposes. Personal expenses are not allowable and must not be claimed as sole trader business tax expenses.

If you use something for business and personal reasons, your mobile phone, for example, you can only claim allowable expenses for the business-use proportion. Even if you mostly operate remotely, for example, as a heating engineer or mobile hairdresser, you can still claim allowable expenses for using your home to run your sole trader business.

Need to know! If you claim the £1,000 a year tax-free trading allowance, you cannot claim any allowable expenses.

Tax expenses you can claim when running a business from home

If you’re buying your home, you can claim a proportion of your mortgage interest payments (1), but you cannot claim mortgage capital repayments. If you rent your home, you can claim a proportion of your rent (2). You can also claim some of your Council Tax (3) as an allowable expense and (if applicable) all of your business rates (4), which can apply if you use some of your home as business premises that welcomes paying customers, for example, if you’ve converted your garage into a gym or treatment room.

You can claim for maintenance and repair costs (5) to the room(s) you use in your house for business, professional cleaning (6), too, if applicable. Where larger repairs (7) are required, for example, to the property’s roof, you can claim a proportion of those costs.

You can also claim a proportion of your water rates (8), as well as electricity (9) and gas (10) when running a business from your home. If you put in a dedicated business landline phone (11), you can claim for all of that; otherwise you can claim for a proportion of your domestic phone bill. The same is true of your broadband costs (12) and your mobile phone (13).

Computers, printers and other equipment (14) that you buy and keep for your business may be claimed as an allowable expense if you use “cash-basis accounting” (ie where you record your income and costs in your financial records when paid or paid out). If you use traditional accounting (where you report your income and expenses on their dates of invoice rather than payment), you must claim them as capital allowances. You can also claim for office furniture and business stationery (15).

Need to know! Only home-related allowable expenses appear in the above list, there are many others. Read – 45 allowable expenses you can claim when you’re a sole trader. If you’re not sure whether a cost is an allowable expense, HMRC recommends that you contact the Self Assessment helpline.

How to work out sole trader allowable expenses

Working out allowable expenses will be reasonably straightforward in many cases, because you’ll have a receipt, invoice or card purchase record and you simply claim for the whole amount. In cases where there’s mixed usage, you’ll have to work out the business use proportion. You’ll need a reliable method that can be justified to HMRC, if necessary.

• Example 1 – mobile phone: If your mobile phone charges are £600 a year (ie £50 a month) and your business calls make up about two thirds of the total, you can justifiably claim £400 allowable expenses.

For utility bills, mortgage interest, rent, etc, you factor in the number of rooms used (most people use one) and days or hours used.

• Example 2: electricity: Your total electricity costs for the year are £1,000. If your home has four rooms, one of which you use for your business 90 hours a month and 10 hours a month for other activities, you could claim £225 as an allowable expense.

Calculation: £1,000 divided by four (number of rooms) x 90% (hours used) = £225

*Both of the examples above are rough calculations for illustrative purposes only.

Need to know! There can be Capital Gains Tax to pay if you sell a property after claiming for all domestic costs for a room for exclusive use, rather than a proportion of costs to show mixed use.

Claiming a flat rate via simplified expenses

You might consider having to work out actual costs a faff you can do without. If so, as long as you work 25 hours or more a month from your home, you’re allowed to claim a flat rate to cover the business proportion of your domestic costs. This is known as “simplified expenses”, which are as follows:

• If you work 25-50 hours a month from home, you can claim £10 per month (£120 a year).
• If you work between 51-100 hours a month from home, you can claim £18 per month (£216 a year).
• If you work 101 hours or more a month, you can claim £26 per month (£312 a year).
• The flat rate does not include telephone or broadband expenses, so you can claim the business use proportion of those costs, too, although you’ll need to calculate these.

Need to know! We’ve created a handy online allowable expense calculator for sole traders and landlords. You can use it to find out roughly how much tax relief you can claim for running your sole trader business from home.

Claiming your sole trader allowable expenses

As a sole trader, you claim your allowable expenses by summarising them within supplementary page SA103, which you file with your main SA100 Self Assessment tax return. You’re not required to submit proof of your allowable expenses when filing your SA103, however, HMRC can later ask for proof. There can be serious consequences for fraudulent allowable expenses claims.

GoSimpleTax is award-winning software that offers you an easier way to complete and file your Self Assessment tax return. And to ensure that you’re claiming all of your allowable expenses, why not get your Self Assessment tax return checked by one of our experts? Start your FREE trial today!

Watch our video to learn what expenses you can claim when working from home

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.