The financial implications of switching to a co-working space

Investing in the use of a co-working space is a big decision for small business owners to make. It will undoubtedly involve some kind of financial investment and there can be lots of logistics involved in moving your office. Perhaps you’ve seen the tell-tale signs that working from home isn’t for you or maybe your dedicated office has become a little too pricey.

Whether you’ve already decided that co-working is the right way to go or want to know more before committing, we’ve got the lowdown on all the financial implications and tax matters involved so you can make the best choice for your business.

Co-working spaces vs working from home: comparing the costs

The cost of a co-working space will depend on a variety of factors, including the type of arrangement you choose. Having a dedicated desk you can call your own will usually cost more than “hot desking” options, while some co-working spaces offer the option to use the space only when you need it on a pay-as-you-go basis.

Location can also affect the cost of using a co-working space. A hot desking space in the centre of London could cost you £400 a month, with costs rising to £450 a month for a dedicated desk. Meanwhile, in less expensive areas like central Scotland, you can find hot desking options for around £50 a month, and dedicated desks for £150 a month.

The perks that a co-working space offers may affect the price as well. If the space offers free yoga, complementary catered events, unlimited artisan coffee or a climbing wall, the additional benefits are likely to be reflected in the cost. Prices differ, so keep an eye out for the options that work well for you.

When comparing the cost of a co-working membership to working from home, the latter will often end up being cheaper. However, remember that working from home still has its costs:

  • Higher energy bills: your heating bills may double over winter if you’re heating your house for twice as long.
  • Higher speed internet: to avoid video calls that lag, you’re probably going to want to invest in a fast internet connection.
  • Home-office equipment: there could be costs involved in setting up a home office, like buying a dedicated desk, for example.

Tax is calculated differently depending on whether you work from home or use a co-working space - and figuring out how much tax relief you can claim when working from home can be quite complicated. You have to look at which rooms of the house you use for work and how often you use them, then gather a percentage of business usage against personal use for each room and apply that to your different utility bills. We’ve simplified this information in a handy infographic.

Can you claim expenses on a co-working space?

The money you spend on using a co-working space is tax deductible. This means that you’re able to claim the cost of a co-working space back against tax you pay to HMRC.

The expenses you can claim for travelling to a co-working space will depend on:

  • whether you take the space out as your main office or only occasionally
  • for full-time co-working use, whether you’re a sole trader or a limited company

If you’re still deciding whether you’re going to use a co-working space occasionally or as your full-time office, pay close attention to the next two sections. They just might affect your decision!

Expenses if you only use a co-working space occasionally

If you use a co-working space occasionally and pay a daily rate every time you do so, you can claim this back as an expense under the category of “office costs”. What is deemed by HMRC as “occasionally” is interpreted from case law, but as a general rule of thumb, it’s when you don’t spend the majority of your working time in the co-working space.

One of the other benefits of occasionally working from a co-working space is that you could claim the cost of your travel to the space as an expense. Imagine a freelancer who works from home from the majority of the time but occasionally travels to London by train to meet clients and hot desks at a co-working space in between meetings. . Because they only use the co-working space occasionally, the freelancer would be able to claim expenses for the cost of these train journeys, as well as for the time they spend in the co-working space.

Expenses if you use a co-working space as your full-time office

If you’re a sole trader, you can still claim expenses for the costs of a co-working space under the category of “office costs” if you use the space as your full-time office. However, if you’re working there on a regular and predictable basis, you can’t claim back the travel costs.

If you’re a limited company director, you or your employees can sometimes claim expenses for travel to a co-working space. This depends on whether the co-working space is classed as your permanent workplace or not.

The criteria for this is whether the company directors and employees in question expect to be at the space for two years and spend at least 40% of their time there. If neither of these conditions are satisfied, then this travel would be considered “ordinary commuting” and would not be eligible for tax relief.

Armed with the knowledge you need about the financial implications of using a co-working space, you should now be in a good position to decide whether it’s the right option for you.

Disclaimer: The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.