Are you self-Are you self-employed and work from home? Have you got home office expenses?
Nowadays there are more and moresmall entrepreneurs who work from home using a space in their home to carry out their activity; in this article we will briefly explain the necessary requirements to be able to deduct the expenses related to home office.
If you work from your home, you have probably set up one of the rooms as an office. If this is your case, do you know what expenses you can deduct in your Income or IVA tax?
What costs can you deduct as a self-employed if I work at home?
As contemplated by the Spanish Law 6/2017, regarding Personal Income Tax, a self-employed may partially link their house or private home to an economic activity, as long as they communicate it to the Tax office through form 036/037.
In this form we need to indicate the address, square meters of the property, and percentage of space dedicated to the activity, as well as the cadastral reference of the property which can be found on the IBI tax receipt or on the purchase title deed of the property.
What kind of expenses can we deduct with home office?
You can deduct expenses related to the ownership of the property such as:
- IBI and rubbish taxes
- Home Insurance
- Depreciation of the property
- Interest on mortgage in the case the property was purchased before 2014.
- Community fees
It is important to note that you will be able to deduct these expenses in proportion to the surface that you use in the activity. Thus, if your house is 100 m2 and you use a room of 20 m2 as office, you will be able to deduct 20% of these expenses, as a business cost.Daniel Bresler, CEO of Legal and Accounting Network
2. Home supplies
The second group of deductible expenses are supplies such as water, electricity, gas, telephone and internet bills. In this case it is important to note that the deductible amount is 30% of the proportional cost of the office space declared on form 036/037.
How do we calculate how much we can deduct at home office ?
First, you need to calculate the proportion between the surface used for the activity and the total surface of the property. In this case if your utility bills for the year add up to 3.000,00 euros, and your office space is 20% of the house, the proportional part that corresponds to the office space is 600,00 €.
The deductible cost will be 30% of 600,00 €, so 180,00 € will be able to be deducted as utility cost for your business activity. The remaining cost will be considered a personal expense and it is not deductible, unless you can prove that the expense is fully related to the business.
By experience, the Tax Office is not very flexible with deducting a higher percentage than the 30% established by law. So, what we recommend is that if you are going to have a considerable business cost such as for example, mobile calls, you could consider having separate lines, (one for business use only), so that you can justify that this cost is fully deductible.
What about the IVA paid on these invoices?
Regarding the deductibility of IVA, the applicable rules are different.
The Tax Office will not allow you to deduct IVA in any proportion. For IVA to be deductible, the expenses must be exclusive to the activity (they cannot cover personal and business needs at the same time).
However, there are some exceptions in which you may be able to deduct IVA on certain expenses: If you carry out work to adapt part of your home as an office. For example, painting or building costs to adapt your office, if you acquire office furniture or other elements for your business such as lamps, cupboards, computers, printers, you will be able to deduct all the IVA paid.
What other requirements need to be fulfilled for an expense to be deductible?
Two important rules must be accomplished:
- The expense must be related to the business activity, and necessary to obtain an income.
- It must be justified by an invoice issued in the name of the self-employed person and be shown in the bookkeeping records.
In relation to the above, many self-employed use receipts or simplified invoices. These in general terms are not deductible, because they do not identify the person that has incurred in the expense. So even if it is time consuming, we advise that you always ask for an invoice no matter how small the amount. Another advice is that you pay it by electronic means and not in cash, as this way you can relate the expense to the self-employed person, bearing in mind of course, that it is a business-related expense.
- Purchase of goods and raw materials
- Wages such as employee payslips, allowances for travel expenses, benefits in kind, bonuses and indemnities.
- Social security costs.
- Repairs and maintenance for fixed assets such as computers, printers for example.
- Professional services from lawyers, accountants or commercial agents.
- Marketing and advertising services
- Office material.
- Hosting and software costs
- Banking commissions, as well as interest on loans and leases.
- Other expenses such as subscriptions or memberships to professional associations, uniforms, training courses, seminars.
- Professional Insurances to cover civil responsibility.
Health insurance paid by the self-employed person, including spouse and children under 25 years of age that are living in the family home, with a limit of 500,00 € per person per year.
Caution with the new spanish self-employed law
Regarding these costs, the new self-employed law approved on 24 October 2017, clarifies a very important issue about certain allowances such as restaurant costs. These costs must comply with the following rules:
- During working days, the self-employed can deduct 26.67 euros per day and 48 euros if they are abroad, when they do not stay overnight.
- This amount increases to 53,34 euros per day if they spend the night in Spain and 91,35 euros if they spend the night abroad.
- These expenses must be paid by electronic means, and the corresponding invoice.
- Meals and lunch expenses are deductible if you can prove that they are related to the business activity such as visiting a client out of the office place. The way to prove this would be by means of confirmation via email of such an appointment with our client or supplier, showing the sales or purchase invoice that related to this meeting. In summary, if a self-employed person works in an office all day and has lunch in a local bar or restaurant, the expense is not considered deductible
What happens if I use my main residence as a home office in the event of a sale?
After considering all the information about using your main residence as home office, we can come to some final conclusions:
You have more expenses to deduct in your activity, although in a small amount considering it is a prorate of the space used. Also, the IVA of these costs are non-deductible.
The amount is very low (30% of the proportional part used as home office) The part of your main residence used as home office will not be considered part of the main residence and will not be able to benefit of any of the tax savings and benefits in the event of a sale.
What does this actually mean?
If you sell your house and wish to apply for the exemption of capital gains tax, if you reinvestment the full proceeds of the sale in a new home, you could only benefit for the part that is not affected by your business activity.
So, if for example you sell your property and make a profit of 100.000 €, and the part that corresponds to your business activity is 25%, you will be able to benefit of the CGT exemption on 75.000,00 euros, and pay tax on the remaining 25% (25.000,00 euros).
To conclude, if you are considering in selling your property, it would be convenient to make an estimation to determine if it is beneficial or not to link your property by a business activity. We will be able to help you in this process and advise you of the best option for you.