Home expenses as business costs - even without a separate office

Running a business from home? You can deduct your housing expenses

Thousands of Polish entrepreneurs run their business from their own flat or house. For many of them this is a natural solution - particularly in sectors based on remote work, consulting services or freelancing. However, a question arises: can expenses related to maintaining a home be treated as tax-deductible costs if no separate room has been set aside exclusively for business purposes?

For years this issue caused considerable controversy. Some tax authorities took the position that a necessary condition for deducting such expenses is the physical separation of a room as an office. This position, publicised by the media, caused concern among entrepreneurs who had for years been deducting the running costs of their premises as part of their business activity.

Fortunately, the matter has now been definitively settled in taxpayers' favour. The Ministry of Finance and the Director of the National Tax Information Service (KIS) have taken a clear position - setting aside a separate room as an office is not required in order to treat housing expenses as business costs.

The Ministry of Finance's position - the key interpretation

The turning point was the Ministry of Finance's response to parliamentary interpellation no. 16957, published as early as 2017. In it, the Ministry explained plainly that the provisions of the Personal Income Tax Act (PIT) do not make the deductibility of expenses dependent on the separation - in the literal, physical sense - of the room in which the business is carried out.

What matters, however, is that the taxpayer determines the proportion of the residential premises that is actually used for the business. Only then can they include the expenses incurred as tax-deductible costs in the appropriate proportion. This position has also been confirmed by a tax interpretation issued by the Director of the National Tax Information Service.

The Director of KIS stated clearly that the Act does not make the deductibility of expenses incurred on rent or utilities dependent on separating a room intended for business activity. If these expenses are connected with the income earned, or with maintaining or securing the source of income, they qualify as tax-deductible costs.

Which expenses can be deducted and in what proportion?

An entrepreneur running a business from a private home is entitled to include both direct and indirect costs as tax-deductible costs. Indirect costs cover expenses relating to the upkeep and running of the premises, which are apportioned according to the floor area used for business purposes.

Examples of deductible expenses

• Rent - in the share corresponding to the proportion of floor area used for the business
• Utility charges - electricity, gas, water and heating, in proportion to the business floor area
• Internet and telephone - if used for business purposes
• Mortgage interest - in proportion to the floor area used for the business
• Property insurance - in the appropriate share
• Costs of minor repairs and renovations - to the extent that they relate to the business floor area

How to calculate the proportion

The rule is simple: determine what percentage of the home's floor area is actually used for the business. For example, if you use 20% of your home's floor area for business purposes, you are entitled to treat 20% of the expenses of maintaining the premises as tax-deductible costs. This proportion should reflect the actual use of the property.

It is worth remembering that the key condition is the link between the expense incurred and income, or the maintenance or securing of the source of income. Every cost claimed should be properly documented and economically justified.

No separate office and property tax - an additional benefit

Interestingly, not having a separate room for business purposes brings another highly significant tax benefit. It concerns property tax, the rates of which differ dramatically depending on how the floor area is used.

The property tax rate for floor area used for business activity is up to 30 times higher than the rate for residential floor area. In line with the established case law of the administrative courts and the position of the tax authorities, the higher rate applies only where the room in question is used exclusively for carrying on business activity.

If, however, a room is used for both business and residential purposes - meaning it has not been fully set aside as an office - the lower tax rate applicable to residential floor area applies. This means that an entrepreneur without a separate office is paradoxically in a more favourable tax position than one who has dedicated an entire room exclusively to the business.

Summary - what to remember

The current tax interpretations clearly confirm that running a business from your home without a separate office does not deprive you of the right to deduct housing expenses as business costs. Moreover, the absence of a separate room can generate additional savings in property tax.

Here are the most important rules to remember:

1. Setting aside a separate room as an office is not required - this is confirmed by the Ministry of Finance and the Director of KIS.
2. Housing expenses are deducted in proportion to the floor area used for the business.
3. The key factor is the link between the expense and income, or the securing of the source of income.
4. No separate office means a lower property tax rate - up to 30 times lower.
5. Every cost claimed should be properly documented.

Correctly deducting housing expenses as business costs requires an individual analysis of your tax situation. Setting the proportion incorrectly or failing to keep adequate documentation may lead to the tax authorities challenging the costs.

Do you need help optimising the tax costs of running a business from home? Contact our firm - our specialists will help you deduct your expenses correctly and protect your position in the event of an inspection. Book a consultation today!