If you run your property business from home, you may wish to use simplified expenses to claim relief for associated household costs. You can also use simplified expenses to disallow the private element if you live in your business premises, as may be the case if you run a B&B.
You can only use simplified expenses if you are a sole trader or run your property business as a partnership. If you operate your property business through a limited company, this option is not available to you.
Working from Home
Working out the additional household costs incurred as a result of working from home can be complicated and time-consuming. Using simplified expenses is quicker and easier.
Simplified expenses work by allowing you to claim a deduction when working out the profits of your property business by reference to the number of hours you have spent working at home on the business. The deduction aims to cover the additional cost of utilities and cleaning incurred as a result of working from home. It does not cover the use of the telephone or the internet and a separate deduction can be claimed for these based on the proportion of business use.
To benefit from simplified expenses, you must work at least 25 hours a month from home. The total includes everyone who works from your home on your business. So, if you employ your spouse in your business, you can include the hours that they work from home as well as your own.
The amounts that can be claimed each month are shown in the table below.
|Business use of home – hours per month||Monthly flat rate deduction|
|25 to 50||£10|
|51 to 100||£18|
|101 or more||£26|
For example, if you spend 90 hours working from home in each month of the tax year, using simplified expenses, you can claim a deduction of £216 (12 x £18) when working out your taxable profit.
Beware Rising Costs
The rates have not been increased since their introduction and, in a climate of high energy prices and high inflation, may not accurately represent the actual costs incurred as a result of working from home. It may be advisable to review actual costs and compare the business element (determined on a just and reasonable basis) to the flat rate reduction available under simplified expenses. Where actual costs are higher, it will be a question of deciding whether the higher deduction justifies the additional work.
Living in Your Business Premises
If you operate a business such as a small hotel or a B&B, your business premises may also be your home. While you can claim a deduction for your business expenses, you are not able to claim a deduction for your personal living costs. Rather than having to apportion the costs, you can instead use simplified expenses to determine the amount to disallow in respect of private use. The disallowance depends on the number of people living in the premises and is shown in the table below.
|Number of people living in the business premises||Monthly flat rate disallowance|
|3 or more||£650|
For example, if you live in your business premises with your spouse and your monthly bills are £2,500 in total, using simplified expenses, you will treat £500 as relating to personal expenses and claim a deduction for the remaining £2,000 a month (an annual deduction of £24,000).
Partner Note: ITTOIA 2005, ss. 94H, 94I.