Claiming Home Office Expenses – What You Need To Know

Do you work from home? This is now common for many Irish people, particularly business owners. If you do you might be able to save money by claiming some of the costs of using your home office as a business expense. Here are the main points that you should remember.

Claiming For Part Of Your Mortgage

In short, you should not do this. Technically it is possible to claim a portion of your monthly mortgage as a business expense if you use a room in your house for business purposes, but in the medium to long term you are likely to end up out of pocket.

Home office expenses

If you claim part of your mortgage payment as a business expense, the Revenue regards the payment made by the business as rental income for you personally. Essentially they regard you as a mini landlord who has rented out a part of your home to your business. It doesn’t matter that it is your home, and it is you that is working in the home – it is still treated as a business transaction.

Many people think that is okay so long as they keep the expense below €10,000 a year. This is the cap for the Rent-A-Roof scheme and if you stay under it, you don’t pay any tax on rental income.

However the Rent-A-Roof scheme only applies to residential lettings. Using your home as a business is regarded as a business letting, so doesn’t qualify under the scheme. Therefore you will be liable to income tax on the portion of your mortgage payment that you claim as a business expense.

In addition there are capital gains tax implications. When you sell your home any profit you make on the sale is protected from capital gains tax by the Principal Private Residence Relief scheme (PPRR). But this only applies to the residential part of your property. Remember that the part of your house that you use for work is treated by the Revenue as non-residential (because it provides you income – technically), so is not covered by PPRR. You will therefore have to pay capital gains tax on this portion of your house.

In summary it is best to avoid claiming part of your mortgage costs as a business expense.

What About Rent?

Rent is completely different. If you rent your home there are no capital gains tax or income tax implications. This is because you don’t own the home, and any payments made by your company go to your landlord, not to you. So you are not receiving the income, making it sensible to claim.

The amount of money you should claim should be proportionate, and you have to genuinely use a part of your home for business use. It should also be noted that the tax authorities will only allow you to claim for additional expenses. For example, it is unlikely that you will be able to claim expenses if you are renting a one bedroom property, as that is the smallest size of property that you can rent regardless of whether you are using it for business or not.

You have two ways of calculating the portion of rent that you can claim as a business expense:

  • Based on square footage – calculate the square foot of your home office and work out what percentage it is compared to the overall square foot of the property
  • Based on the difference in rent – for example, let’s say you need a two bedroom property for personal use, but you rent a three bedroom property in order to get the extra room to use as an office. You can claim the difference in rent between what you are paying for the three bedroom property, and what you would have paid for a two bedroom.

Finally on rent, make sure you claim a consistent amount every month.

Can You Claim For Light And Heat?

You can claim for lighting and heating expenses, but only for the additional costs that you incur. This is based on an estimate, but it has to be reasonable. For example, if you only work at home on the weekends, and you would normally be at home at the weekend anyway, are you really incurring that much additional lighting and heating costs?

The amount that you claim should reflect the time that you actually work at home. Therefore it can vary from month to month, if the time you spend working at home varies.

And What About Telephone And Broadband

You can claim for all business telephone calls made from any phone, including your home phone or personal mobile. It is also possible to claim expenses for your broadband bill, either in full, or as a proportion.

Insurance

You should always check your household insurance to ensure the policy allows you to work at home. You may find that there is an additional premium applied to your policy when you let them know. If this happens, you can claim this additional premium as a business expense.

In general (and with the exception of your mortgage) you can claim for any additional expenses that you incur using your home for business, but this is only a guide. It is always best to consult your accountant on any businesses expense or tax decision.

Posted in Revenue, Small Business, Tax.