How to record ‘business use of home’ expenses in FreeAgent

If you work at home, you may be able to claim a proportion of your household running costs as business expenses. This article explains how to record those expenses in FreeAgent.

Before you enter household running costs as business expenses, you’ll need to make sure you’re entitled to claim them and calculate what proportion of the cost you can claim.

You may be able to claim a proportion of your rent, mortgage interest, council tax or energy bills, depending on the rules for your business type. For telephone and broadband bills, the proportion should be calculated based on the business's use of these services, rather than use of space in the property. Your accountant is the best person to advise you on this.

For general guidance on calculating your working from home expenses, check out our infographics for sole traders and limited company directors.

1. Calculate the amount to claim

To begin, you will need to work out what proportion of each applicable household running cost is considered a business expense. The proportion will vary depending on your business and how you use your home.

For example, if your electricity bill is £100 and you've calculated that you can claim 20% of that bill as a business expense, then you’ll need to explain £20 of that bill as a ‘Use of Home’ expense in FreeAgent.

2. Split the bank transaction

Once you’ve calculated how much you can claim, you will need to split the relevant bank transaction to explain the correct proportion as a business expense.

To do this, navigate to 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.

Choose the relevant bank account from the list of accounts.

Select the relevant transaction, then select 'More Options' to split it into the amount you can claim and the amount you can't.

3. Explain the proportion that is a ‘Use of Home’ expense

Select ‘Payment’ from the ‘Type’ drop-down menu.

Enter the amount that you are going to claim as a ‘Use of Home’ expense in the ‘Value’ field. In our example, this would be £20.

Select ‘Use Of Home’ from the ‘Category’ drop-down menu, add a description for the expense and select ‘Create New Explanation’.

4. Explain the remaining balance

Next, you will need to categorise the remaining balance of the bank transaction. You will notice that FreeAgent has created a new transaction for the remaining amount to be explained. In our example, we’ve explained £20, so FreeAgent has created a new transaction for the remaining £80.

Select this new transaction, then select ‘Money Paid to User’ from the ‘Type’ drop-down menu. Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.

If you're an employee or director of a limited company, select ‘Payment from Director Loan Account' from the ‘Category’ drop-down menu. If you're a sole trader or partner, select ‘Drawings' from the ‘Category’ drop-down menu.

To complete the process, select ‘Explain Transaction’.