Brian Barr
If you're working from home, you may be able to claim back a portion of your electricity bill as a tax deduction. The amount you can claim depends on a few factors, including the percentage of your home that your office takes up, the number of hours you work from home, and the percentage of time spent in your office for business vs personal use. For example, if your home office occupies 20% of the space in your home, you can write off 20% of your electricity bill as a tax deduction. It's important to note that you can only claim the portion of expenses directly related to earning your income, and you must keep records and receipts to support your claims.
| Characteristics | Values |
|---|---|
| Claiming electricity expenses | You can claim a portion of your electricity bill as a tax deduction. This is calculated based on the percentage of space that your office occupies in your home. For example, if your home office occupies 20% of the space, then 20% of your electricity bill can be claimed. |
| Requirements | To be eligible for the tax deduction, you must regularly and exclusively use the home office for work or business purposes. It should be your principal place of business, meaning you work remotely from home 100% of the time. |
| Other deductible expenses | Other expenses that may be deductible include phone and internet expenses, computer and stationery consumables, and home office equipment such as printers, office furniture, and furnishings. |
| Calculation methods | There are different methods to calculate the amount you can claim, such as the simplified option, the regular method, the shortcut method, the fixed-rate method, and the actual cost method. These methods consider factors like the number of hours worked from home, the percentage of space occupied, and the actual costs incurred. |
| Record-keeping | Keep records of your expenses, such as receipts, bills, or bank statements, as proof for tax purposes. |
| Professional advice | Consult a registered tax advisor or the relevant taxation office in your country for specific guidance on what you can claim and how to calculate it. |
| Energy-saving tips | To reduce electricity costs, consider using energy-efficient equipment, unplugging electronics when not in use, adjusting your thermostat, and utilizing natural lighting and temperature control. |
| Insurance considerations | If your home insurance covers items used for business, such as a computer or printer, that portion of the premium may be considered a work-related expense and could be deductible. |
What You'll Learn
Claiming a percentage of your electricity bill
If you work from home, you may be able to claim back a portion of your electricity bill as a tax deduction. This is applicable to self-employed people, sole traders, and employees. The exact method of calculating the amount you can claim depends on your country of residence and employment status.
In Australia, the Australian Taxation Office (ATO) allows employees to claim 80 cents per hour worked from home as a tax deduction. This covers expenses such as phone expenses, internet expenses, the decline in value of equipment and furniture, and electricity and gas for heating, cooling, and lighting. Alternatively, you can use the fixed-rate method, which allows you to claim 52 cents per work hour for heating, cooling, lighting, cleaning, and the decline in value of office furniture. You can also claim the work-related portion of your actual costs for phone and internet expenses, computer consumables, stationery, and the decline in value of a computer or laptop. The third option is the actual cost method, which allows you to claim the actual work-related portion of all your running expenses, including electricity and gas for cooling, heating, and lighting.
In the UK, HMRC permits one-person businesses to use a "reasonable method" to claim a proportion of their energy costs for the part of the home used for business. Company directors can only claim a percentage of their energy bills that represent the extra cost of working from home, while sole traders may claim a percentage of most home running costs. The Flat Rate Method is a simple way for sole traders and partnerships to claim a set amount of tax relief based on the number of hours spent working at home each month.
In the US, you can write off a percentage of your electricity bill that is equal to the percentage of space that your office occupies in your home. For example, if your home office occupies 20% of the space in your home, you can claim 20% of your electricity bill as a tax deduction. Additionally, as of 2019, the IRS allows a home business to write off $5 per square foot of office space as a tax deduction.
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Calculating the percentage of your home office space
When it comes to claiming back electricity for your home office, the percentage of your home that is used as a workspace is a crucial factor in determining the amount you can deduct on your tax return. Here are some detailed instructions on calculating this percentage:
Step 1: Measure Your Home Office Space
Start by measuring the length and width of your home office space. If your office space is a standard rectangle or square, simply multiply the length by the width to get the total square footage or square meters. However, if your office space has an irregular shape, divide it into rectangular sections and calculate the area of each section before adding them all together.
Step 2: Measure Your Home's Total Area
Next, you'll need to determine the total area of your home. Similar to the previous step, measure the length and width of each room in your house and calculate their individual areas. Then, sum up all the areas to find the total square footage or square meters of your home.
Step 3: Calculate the Percentage
Now that you have the measurements for your home office and your entire home, you can calculate the percentage of your home that is dedicated to your office. Divide the area of your office space by the total area of your home, and then multiply that number by 100 to convert it into a percentage. This percentage represents the portion of your home that is used for work and can be used to determine your eligible deductions.
Example Calculation:
Let's say your home office measures 4 meters in length and 3 meters in width, giving it a total area of 12 square meters. If your entire home has a total area of 120 square meters, you would calculate the percentage as follows:
12 m^2 (size of work space) / 120 m^2 (size of home) x 100 = 10% (percentage of home used as a workspace)
Additional Considerations:
It's important to note that the calculation method may vary depending on your country's specific tax regulations. Additionally, there are other factors that may impact your deductions, such as the number of hours you use the space for work, the type of work space (shared or designated), and whether you work from home permanently or temporarily. Always refer to your local tax guidelines or consult a tax professional for the most accurate and up-to-date information.
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Claiming for other utility bills
If you work from home, you may be able to claim a portion of your utility bills as a business expense, depending on whether you are a company director or sole trader.
Company Directors
Company directors have two options for claiming utility bills:
- Claim a flat rate of £18 per month for "working from home" expenses. No receipts are necessary for this option.
- Claim a proportion of each utility bill using a reasonable calculation. While there is no set definition of what counts as a "reasonable calculation", here is a recommended method:
- Divide the utility bill by the number of rooms in your house, excluding bathrooms.
- For each room you work in, divide the number of hours worked in that room per day by the total number of hours spent in the room per day. Multiply this by 100 to get the percentage of time spent working in the room.
- Multiply the room cost by the percentage calculated in step 2.
- Add these amounts together to get the total claim for the utility bill.
It is important to note that company directors can only use the above method for heating and electricity bills. They cannot claim fixed costs like insurance, mortgage repayments, repairs, council tax, or cleaning.
Sole Traders
Sole traders have the same two options as company directors, but they can also use the second method for home insurance (if it covers their business), rent, council tax, repairs, and cleaning bills that apply to the whole house, and the interest on mortgage payments (only the interest, not the full payment).
The simplified method for sole traders covers heat and electricity and allows them to claim a flat rate based on the hours they work during a month:
- 25 to 50 hours: £10 per month
- 51 to 100 hours: £18 per month
- 101+ hours: £26 per month
General Guidance
When claiming utility bills as a business expense, it is important to keep in mind that only expenses directly related to maintaining your home office are deductible. Additionally, you may be able to deduct a portion of certain expenses associated with your home that are not typically deductible by the average homeowner. These may include insurance, utilities, repairs, security system expenses, maid service, garbage disposal, and decorating expenses.
It is also worth noting that if you use a portion of your home exclusively for work, you may have to pay capital gains tax on that room when you sell your house.
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Claiming for phone and internet expenses
When it comes to claiming for phone and internet expenses, there are a few things to keep in mind. Firstly, you can only claim the portion of expenses that directly relates to earning your income. This means that if you use your phone and internet for both personal and work purposes, you will need to apportion your deduction accordingly.
For example, if you have a bundled plan that includes phone, internet, and other related services, you will need to calculate the cost of each service covered by the plan and then determine the percentage of work-related use for each service. This can be done by keeping a diary for a continuous 4-week period to establish your work-use pattern, which you can then apply to the full income year.
It's important to note that you can only claim the cost of your phone and internet use that relates to your work. Personal use, such as personal emails or phone calls to family and friends, is not eligible for a deduction. Additionally, you cannot claim expenses for phone or internet services provided by your employer or someone else.
To claim a deduction for phone and internet expenses, you must meet certain conditions. These may include incurring the cost and using the service to perform your work duties, as well as maintaining records of your expenses and usage. It's always a good idea to keep receipts, cancelled checks, invoices, or other relevant documentation to support your claims.
When calculating your deduction, you can either claim incidental use (usually with a limit) or keep detailed records to calculate the actual expenses for work-related use. It's worth checking with your local tax office or a registered tax advisor to understand the specific requirements and eligibility criteria for claiming phone and internet expenses.
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Claiming for office equipment
When it comes to claiming for office equipment, there are a few things you need to keep in mind. Firstly, you can only claim expenses for equipment that you use exclusively for work purposes. This means that if you use the equipment for both private and work purposes, you will need to apportion your deduction accordingly.
Additionally, the way you claim expenses may depend on the cost of the item. For example, in Australia, if the item costs $300 or less, you can claim an immediate deduction, provided you use it more than 50% of the time for work purposes. On the other hand, if the item costs more than $300, you can claim a deduction for the decline in value over its effective life.
In the UK, you can claim tax relief on the full cost of substantial equipment, such as a computer, that you need to buy for work. This qualifies for a type of capital allowance called the annual investment allowance. However, it's important to note that you cannot claim capital allowances for vehicles or bicycles, even if you use them for work.
It's also worth noting that you may be able to claim expenses for repairs and maintenance of your office equipment. This includes items such as power boards, charging cables, computers, and printers.
Remember to keep records of your expenses and the use of the equipment to support your claims. This includes receipts for the items you buy and records showing how you calculated the percentage of work-related use.
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Frequently asked questions
You may be eligible to claim back electricity for your home office if you work remotely some of the time, if you worked from home for a portion of the tax year, or if your primary work function is conducted at home.
You can claim back a percentage of your electricity bill that is equal to the percentage of space that your office occupies in your home. For example, if your home office occupies 20% of the space in your home, then you can claim back 20% of your electricity bill.
You may also be able to claim back a portion of your home insurance, phone and internet expenses, computer and stationery consumables, and home office equipment, including computers, printers, office furniture and furnishings.
You can include these expenses on your Self Assessment tax return. You don't have to send proof along with your tax return, but you should keep receipts in case HMRC asks to see proof.
If you're a sole trader, you can claim a business proportion of your energy bills or use the Flat Rate method to include an equivalent of them. You can also include a business proportion of other home costs such as your rent, council tax, mortgage interest, insurance, and repairs or cleaning.
