With more people choosing to run their businesses from home, understanding the tax implications is essential.
Whether you’re a freelancer, sole trader, or limited company director, knowing what expenses you can claim and how to stay compliant with HMRC guidelines can help you reduce your tax bill and avoid penalties.
Registering Your Home-Based Business
Before you start, ensure your business is legally registered with HMRC. If you’re self-employed, you must register as a sole trader and file a Self-Assessment tax return. If you run a limited company, you must register with Companies House and follow corporate tax regulations.
Some home-based businesses may also need local council permissions, especially if clients visit your home or if there are planning permission concerns.
Claiming Business Expenses from Home
Running a business from home means you can claim certain costs as business expenses. This reduces your taxable profit, potentially lowering your tax bill. Allowable expenses include:
a) Utility Bills & Rent/Mortgage
If you use part of your home for business, you can claim a proportion of:
- Electricity & Gas
- Water
- Council Tax
- Rent or Mortgage Interest (not capital repayments)
- Broadband & Phone Bills
The proportion should be based on a fair calculation, such as the number of rooms used for business or hours worked from home.
b) Office Equipment & Supplies
You can claim tax relief on:
- Computers, laptops & printers
- Desks, chairs & storage units
- Stationery & postage costs
- Business software & subscriptions
c) Business-Related Travel
If you travel for work (e.g., meeting clients or attending events), you can claim expenses for:
- Mileage allowance (45p per mile for the first 10,000 miles, then 25p per mile) if using your own car
- Public transport fares
- Accommodation & meals if staying overnight
d) Insurance & Professional Fees
- Home business insurance
- Accountancy fees
- Professional memberships
- Advertising & marketing costs
HMRC’s Simplified Expenses for Home Businesses
HMRC offers a Simplified Expenses Scheme, allowing you to claim a flat rate for home working costs instead of calculating actual expenses. As of 2024, the rates are:
| Hours Worked From Home | Flat Rate (Per Month) |
| 25-50 hours | £10 |
| 51-100 hours | £18 |
| 101+ hours | £26 |
This method is easier to manage but may not always be the most tax-efficient compared to claiming a proportion of actual costs.
VAT and Running a Home-Based Business
If your business earns over £90,000 per year (2024/25 threshold), you must register for VAT. Even if your turnover is below this, you may still benefit from voluntary VAT registration, especially if your business incurs VAT on supplies.
Self-Assessment and Tax Deadlines
As a home-based business owner, you must file a Self-Assessment tax return each year. Key deadlines:
- 31st January – Online tax return & payment due
- 31st October – Paper tax return deadline
- 5th April – End of the tax year
Late submissions result in penalties, so keep records of income, expenses, and receipts for at least six years.
Capital Gains Tax Considerations
If you sell your home and have used part of it exclusively for business, you might be liable for Capital Gains Tax (CGT) on that portion of the property. However, if your home is used for both business and personal purposes, Private Residence Relief may apply, reducing or eliminating the CGT liability.
Final Thoughts: Stay Compliant & Save Tax
Running a business from home offers flexibility, but understanding tax rules is crucial to maximising deductions and staying compliant with HMRC.
Need help managing your tax affairs? Contact PG Owen today for expert advice on making your home business as tax-efficient as possible!
