Can You Build A Home Office Using Finance Or Make It A Business Expense?

Home offices have become incredibly popular in the last few years, mostly because the COVID pandemic forced people to work from home for extended periods of time and now both employers and employees have developed a taste for it. 

Whether it is a home office in a spare bedroom, a designated converted space or a stylish garden shed office, there is a case for making it a business expense. After all, if you worked in an office in the city and paid rent, this would be an office expense. So if you have a home office dedicated for work and only work, can it be expensed? 

This is a great question for homeowners, because having a home office also increases the value of the home if you have added extra square feet to the property. In this piece, we look at specific tax regulations and the nature of your work to understand if the costs associated with your home office can be expensed or not.

How You Finance Your Home Office

Whilst some people can pay for a new home office out of their general savings, others may use a personal loan for the renovations or installation of a new office or garden shed. This will depend on the size of your office, but £10,000 could be a good starting point to pay for a mini garden shed, or conversion which includes a nice desk and some screens. 

If you go bigger at £30,000 or higher, you may not find a personal loan cutting in and you may look at things like remortgages to release equity from your home or using bridging finance to provide the necessary funds for the home office project.

If you are self-employed or run a small business from the location of your home, there may be opportunities to claim all or some of the costs as business expenses. The HMRC allows self-employed individuals to claim a portion of their home expenses if part of their home is used for business purposes. This can include a percentage of costs such as mortgage interest, rent, utilities, and even some renovation expenses.

Can You Claim a Home Office as a Business Expense?

To truly claim all your home office costs as a business expense, the space and area you use for work must be exclusively for business activities – and this can be common for people that run salons or medical practices from home (quite common these days).

In practice, this means that the area should not be used as a personal space when not in use for work – it is essentially out of bounds during the rest of week or weekend.

The HMRC provides guidelines on how to calculate the proportion of home expenses that you can claim for. As an example, if you use 1 out of 5 rooms exclusively for work, you can potentially claim 20% of your household expenses related to that room.

Specific expenses that may be claimable include:

• Heating
• Electricity
• Council Tax
• Mortgage interest or rent
• Water rates
• Internet and phone costs

However, the HMRC are more particular about the construction costs to build the office which  are generally not fully deductible, such as building work, extensions or renovations. Instead, they might be subject to capital allowances, which can be more complex to calculate.

Popularity of Working from Home and Home Offices

The popularity of working from home has increased massively in the UK. According to the ONS, in 2020, nearly 46.6% of people in employment did some work from home. This shift has led many to reconsider their living spaces to better accommodate remote working needs.

To meet the changing needs of their work and work life balance, many people have chosen to convert spare rooms, lofts, basements, or even build new structures in their gardens. 

Garden offices are very popular allowing privacy from the rest of the home and no planning permission either.. These standalone buildings offer a quiet, dedicated workspace separate from the main living area and can be quite cosy. 

Building a Home Office

When considering building a home office, the costs can vary widely depending on the complexity and size of the project. 

A basic home office setup might cost a few thousand pounds, while a fully equipped garden office can range from £5,000 to £30,000 or more, according to price comparisons like Lending Expert. These figures include construction, insulation, electrical work, internet connectivity and furniture. 

Erecting a home office can be a practical solution for the increasing number of people working remotely. 

How you choose to finance it through loans, savings, or remortgaging, or claim some of the costs as business expenses, having a dedicated workspace can enhance productivity and work-life balance. With nearly 50% of the workforce experiencing remote work, the trend towards home offices both inside the home or in the garden is likely to continue growing. 

Be sure to consult an accountant or professional to fully understand the tax and expense implications, rather than get a surprise letter from the HMRC one day saying that you owe money!