Record ‘business use of home’ expenses

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'll need to split the relevant bank transaction to explain the correct proportion as a business expense. 

Navigate to the '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, click on the relevant transaction and choose ‘Split transaction’ from the ‘Adjustments’ drop-down menu.

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

Select ‘Payment’ from the ‘Type’ drop-down menu and 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 and select ‘Save and add another’ at the bottom of the screen.

4. Explain the remaining balance

Next, you will need to categorise the remaining balance of the bank transaction. We’ve explained £20, so FreeAgent will create a new transaction for the remaining £80.

Select ‘Money Paid to User’ from the ‘Type’ drop-down menu and enter the remaining amount in the ‘Value’ field, £80 using our example above. 

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 ‘Reason’ drop-down menu. If you're a sole trader or partner, select ‘Drawings' from the ‘Reason’ drop-down menu.

Select ‘Save and finish’ at the bottom of the screen to complete the process.

If you paid for 'use of home' costs from your personal funds and there are no bank transactions in your business bank account corresponding to these costs, these would be added to your FreeAgent account as an out of pocket expense in the Expenses section of your FreeAgent account.