Do you have a home office?

When a client has a home office that occupies space in his or hers private house or apartment, it is often up for discussion whether or not a tax deduction can be obtained. In general you can say that 1 key factor has to be present: There has to be a physical office separated from other rooms like the living room f. ex. An office in the bedroom is not either considered to be separated from other rooms. The room where the office is needs to have a door that you can close basically. It also needs to be used in a level that makes it not usable for private purposes. We normally say that the office needs to be used 6-8 hours a day but there are no laws regarding this. Which invoices and expenses you can deduct depends on how much percentage is used for the home office. The client needs to make a drawing of the home and the home office and calculate the share (in percent) used for the company. The client then gets a deduction in tax by adding some of the actual expenses relating to the house or apartment to the company’s expenses (making the revenue smaller = payable taxes becomes smaller). Also other options for lowering the taxes are given. The expenses you need to know are:

Ejendomsskat – Property tax

This rule only applies for clients that own the house or apartment where the home office is located. A special deduction is given in the property tax paid by clients that own their apartment or house. The Danish word for property tax is “Ejendomsskat”. If the home office is less than 10% of the total area of the home then no deductions can be made in the property tax regardless of having a home office. If the home office is from 10% to 24% of the total area of the home then a deduction can be given in tax from capital gains arising from other incomes (no lowering of the company result happens here, property tax is kept out of the company result table). If the area covers more than 25% then the deduction is given in the company result as a normal expense. The deduction then equals the percentage the home office occupies of the home. There is no VAT on property tax, however a small amount of VAT is added to the invoice sent to clients, since it also contains payments of public services. The VAT on these services can be partially deducted using the percentage that the home office occupies. When booking these deductions in the company then simply use the standard chart of accounts to locate the account for “Ejendomsskat”. If you do not have the account it needs to be created in your chart of accounts first.

Example 1: A home office taking up 20% of the area of a home will give a deduction in capital gains equaling 20% of the property tax (ejendomsskat).
Example 2: A home office taking up 26% of the area of a home will give a tax deduction by deducting 26% of the property tax from the revenue of the company.
Example 3: A home office taking up 6% of the area of a home will not give a property tax deduction.

Ejendomsværdiskat – This is another type of tax calculated from the value of the property

´This rule only applies for clients that own the house or apartment where the home office is located. The deduction equals the percentage the home office occupies of the building. F. ex. a home office taking up 20% of the area of a home will give a 20% deduction the special property tax (ejendomsværdiskat). There is no minimum area needed here. There is no VAT on this tax.

Expenses relating to maintaining the house or building where the home office is located

This rule only applies for clients that own the house or apartment where the home office is located. Only when the home office exceeds 10% of the total area of the home then maintenance can be deducted. The VAT on these expenses can be partially deducted in the company, using the percentage that the home office occupies, if the company is registered for VAT. When booking these expenses in the company then simply use the standard chart of accounts to locate the relevant accounts. If you do not have the accounts they need to be created in your chart of accounts first.

Utility expenses

This rule applies for all clients that use their house or apartment for having a home office. Expenses like insurance, garbage disposal, cleaning, alarm etc. can be deducted in the company’s revenue when the home office exceeds 25% of the total area of the home. The VAT on these expenses can be partially deducted in the company, using the percentage that the home office occupies, if the company is registered for VAT. When booking these expenses in the company then simply use the standard chart of accounts to locate the relevant accounts. If you do not have the accounts they need to be created in your chart of accounts first.

Electricity

This rule applies for all clients that use their house or apartment for having a home office. Electricity can be deducted with the percentage that is used for home office. There is no minimum requirement. Note: Some clients have had success with calculating a larger deduction than the normal percentage based upon proof that their electricity consumption had increased dramatically after starting their company. The VAT on these expenses can be partially deducted in the company, using the percentage that the home office occupies, if the company is registered for VAT. When booking this expense in the company then simply use the standard chart of accounts to locate the relevant account for electricity. If you do not have the account it needs to be created in your chart of accounts first.

Water

This rule applies for all clients that use their house or apartment for having a home office. Water usage can be deducted with the percentage that is used for home office. Note: It can always be argued from the tax office that water is not part of the company’s normal expenses and a deduction could then be declined. The home office has to be at least 10% or more to obtain a tax deduction. The VAT on these expenses can be partially deducted in the company, using the percentage that the home office occupies, if the company is registered for VAT. Note: An additional VAT deduction can be made with 5 DKK per cubic meter of water used in the company. When booking this expense in the company then simply use the standard chart of accounts to locate the relevant account for wataer. If you do not have the account it needs to be created in your chart of accounts first.

New installations or renovation

In general there are never given tax deductions for making new installations or renovating family homes. No VAT is deducted either.

Booking repayments on mortgages and interests relating to the private home

This rule only applies for clients that own the house or apartment where the home office is located. Repayments on mortgages and interests are not booked nor deducted in the company despite having a home office. No VAT is deducted either.

Do you have any questions to home offices?

Please send us an email: info@daniaaccounting.com

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