Hi there, Nicholas Campion here from 1st Formations. Welcome to another episode of Whiteboard Thursday,
where we provide advice on a wide range of business and company matters. So if you want
to keep up to date with our insights, advice and inspiration, then hit that subscribe button.
But for now, let's get started. Today I want to walk you through how you can lower your personal tax
bill while working from home, with seven 'must-claim' allowable expenses, regardless of whether you're working
as a sole trader, as a limited company, or as an employee of another company. First things first,
what do we actually mean when we say allowable expenses? Allowable expenses
are the essential costs that you need to spend to keep your business up and running. Fortunately
HMRC recognizes this and so allowable expenses are tax-deductible. That's why they let you offset them
against your annual tax bill. You can claim these expenses in a couple of different ways: if you are
self-employed and you complete a self-assessment tax return every year, you will be able to tally
up your allowable expenses for the year on your return. The total value of those expenses
will then be subtracted from your business revenues for the year. The number that's left is
considered your profit, and HMRC will normally only tax you based on that profit. For example, let's
say you're a sole trader and you've made £60,000 but you were able to claim £15,000
of allowable expenses. That means HMRC will only ask you to pay tax on the £45,000.
It's really important to keep records and receipts of all of your business expenses. You don't have to
send these records in with your self-assessment return, but you do need to have them stored away
in a safe place, just in case HMRC ever contacts you and asks for proof of your expenses. Now you
might be thinking: okay, so I'm not a sole trader or a limited company owner; I'm an employee of someone
else's business - can I claim expenses too? And the answer to this is yes - but the way you'll go about
claiming those allowable home working expenses is a little bit different. If your employer asks
you to work from home either part or all of the week, you will normally be able to claim tax relief
for the extra household costs that you're going to incur. This includes a lot of the same expenses you
might fill in on a self-assessment return, such as heating bills, water bills, or contents insurance. You can
make a claim and you've got two options: now you can choose to claim £6 a week from the
6th of April 2020, and you will not be expected to keep evidence of your extra costs; or you can claim
the exact amount of the extra costs that you've had to pay above that weekly amount, but if you
go for that option, you'll need to keep evidence like receipts and invoices, regardless of the route
that you choose. You can then claim your expenses online using your Government Gateway ID. If you
haven't got a Government Gateway ID, this takes about 10 minutes to set up online, and for this
you'll need your National Insurance Number and a recent payslip P60 or valid UK passport to do it.
Okay, so we've covered what allowable expenses are and how to claim them, now let's talk about what
you should be claiming. Straight in at number one are your mortgage and rent. Costs associated with
your business premises have historically always been tax-deductible right? Well it works the
exact same way if your business premises or your home office happens to be your home.
If you rent your home or pay a mortgage, HMRC allows you to claim a portion of those costs as
an allowable business expense on your annual tax return. The trick here is that you've got to work
out how much of your mortgage or rent counts as an allowable expense. For example, let's say you're
working from home in a five-room house for tax purposes. HMRC doesn't count a kitchen or bathroom
as a room if you're using one room exclusively for work purposes. That means you're using 20% of
the rooms in your house for business, and as a result you can claim 20% of your annual mortgage
or rental costs on your tax return. The exact same rule will then apply to your mortgage interest but
not capital repayments. Number two is your heating and electricity bills. Your energy bills will
probably rise if you're staying at home all day to work. Fortunately, you can claim a portion of
these costs too. You'd normally calculate the percentage of your bills that you can claim as
allowable expenses in the same way that you'd tally up your mortgage or rental claim.
Simply calculate what percentage of your heating and electricity goes towards supporting your work
environment: for example, if you've spent £150 to power your home, and you use
one of five rooms in your, home for work-only purposes, £30 a month of your energy bills
would be considered an allowable expense. So number three is your broadband bills.
Let's face it: in this day and age, it is almost impossible to work from home without reliable
broadband. It's how a lot of office workers dial in and carry out their daily tasks, and it's how
a lot of small business owners advertise and make sales. That makes broadband a business essential,
which also means that it's an allowable expense in the eyes of HMRC. But just like energy bills and
your mortgage or rent, there is a catch: you're only allowed to claim for broadband expenses that are
directly related to your work. So if you already had broadband prior to working from home, and
you still use it often in a personal capacity, that means you can't claim for the entire
monthly bill. You can only claim for the proportion of that bill which is directly linked to your work.
So coming in at number four is your council tax bill. Now this is one a lot of remote workers
forget when they're working from home, but if your business premises is your home, and you've got to
pay council tax, that makes council tax a necessary business expense for at least a part of your
council tax. Again, HMRC operates the same rule on your council tax bill that it would apply to your
utilities or mortgage. You can claim council tax as an allowable expense but only insofar as it
applies to your work. The easiest way to determine this is to go back to the number of rooms scenario.
That is to identify how many rooms you are using exclusively for work purposes and then apply that
to your council tax bill. For example, if you're paying a £100 in council tax and you're
using one of four rooms in your flat exclusively as a home office, that means a quarter of your
council tax bill is tax-deductible. So number five is your mobile phone bill. Now that you're working
from home, are you using your mobile phone to make calls to your employees, your boss, or your
your clients? Because if that's the case, you should be claiming part of your mobile phone bill
as an allowable expense. People generally choose to go one of two routes when they
claim for mobile phone use. Now they can either claim for only the percentage of
use which is directly work-related, or alternatively they can set up a work-only
mobile phone contract and then claim that contract in its entirety. Again, tread carefully here: if HMRC
ever ask to see proof that your £50 a month mobile bill is for work purposes, and they
can clearly see that you're using it for personal use, then you might get yourself in hot water.
Number six: magazine subscriptions. So when you're working in the office with other professionals,
you may pass around trade publications. But when you're working remotely, you can't exactly pass
around the magazine. Fortunately, if you choose to subscribe to a work-related magazine on your own,
and pay the bill for it, the entire cost of that subscription is tax-deductible. But it's
important to note that you can't claim for a trade publication subscription if your boss has already
paid for it on your behalf. And finally, number seven: contents insurance. A lot of homeowners
take out contents insurance to protect items from loss or damage. But did you know that you can
claim a portion of the cost of your insurance policy back as an allowable business expense?
That's right: if you're working from home a portion of your contents insurance policy and
other kinds of property-related insurance turns into a necessary business expense. But just like
utilities, you can only claim for the proportion of the insurance costs that link to your business.
And there you have it. So we have covered seven allowable expenses that you can
and should be claiming on your self-assessment tax return wherever possible. And when you're working
from home, you can even claim many of these expenses if you're employed by somebody else
and don't submit a self-assessment return, but the process works a little bit differently. If you're
claiming these expenses as an employee, either way, all of these expenses are worth exploring. You'll
be shocked how quickly they all add up, and how much you can lower your annual tax bill by. But don't
forget to keep records and receipts, and don't take all of these allowable expenses for granted. Every
once in a while, HMRC will change the rules, and certain expenses or how much you can claim for
certain things like car mileage. So when in doubt, you should always consult an accountant or contact
HMRC directly to make sure that the items you're claiming are indeed allowable expenses. If you
have any questions about what we've covered today, please ask in the comment section below, and we'll
be sure to get back to you as soon as possible. In the meantime, be sure to subscribe to our channel
to get more tips and tricks on limited companies' reporting requirements, tax obligations and much
more. We're always happy to help and we can't wait to hear from you. Until next time, cheerio.