When running a small business from your home you are entitled to make a claim for the costs associated with this.
Inland Revenue require you to determine the office area as a percentage of your whole home for these claims. To work this out you need to create a plan of your house (if you haven’t one already) to calculate how many square metres it is in total – then work out the total square metres used for the office area.
The office area divided by the total house area multiplied by 100 is your business home office percentage claim. This can then be applied to home claim costs for tax deductions. For example if your home is 160 square metres and the office is 20 square metres you could calculate the home office claim percentage like this…
20 ÷ 160 = 0.125
0.125 x 100 = 12.5%
In this example the home office claim works out to be 12.5% and will be the rate used when working out the expense claim which may include power, rent, interest on mortgage, rates, insurance also home phone and internet are claimable. Your claim may vary considerably to this example depending on house and office size and how justifiable it is if Inland Revenue take a closer look. Remember to keep good records!
Any questions about claiming your small business home office to reduce income tax please ask – we’re always happy to help.