Working from Home and Claiming Expenses

Business owners often manage their business from home- even if it’s only intermittently. And technological advancements have made the idea of working from home indefinitely a viable option. But expenditure and assets that could or do have a mixture of business and personal use, can often lead to headaches with regards to their tax treatment. 

Household bills

There are two main ways of calculating use of home if you are a sole trade or partner in a business:

Firstly, if there is only minor use, for example writing up the business records at home, you may put through a reasonable estimate with little risk of dispute by HM Revenue & Customs (HMRC). As a guide, this tends to be about £4 per week. Needless to say, you should bear in mind what you are actually spending in comparison to this flat rate.

If you are based from home, then you could apportion the household bills such as gas, electric, water etc by dividing the total costs over say, the number of rooms, and multiplying that figure by the number of rooms used for business purposes

In order to satisfy tax law, when part of the house is being used for the business then that must be the sole use for that part at that time. Thus if the part of the home used for business purposes is simultaneously used for some other non-business purposes, then no deduction is available. 

Home broadband and telephone bills

You may include the cost of business calls on the home telephone and a reasonable proportion of the line rental, in addition to expenditure on internet connections to the extent that the connection is used for business purposes.

Insurance

Do not rely on your household insurance. Ordinary household insurance policies will not usually cover business risks such as employers’, public, or product liability.

If you start working from home or using your car for business, your household and motor insurance may be invalidated.

Clothing costs

Clothing such as suits would be classed as part of your “everyday” wardrobe and is therefore not deductible expenditure for tax purposes. This is the case regardless of whether particular standards of dress are required for your business. It is also irrelevant whether you actually wear the suits on non-business occasions- the only question is whether the clothing would hypothetically be suitable for everyday use.

However, if the clothing is necessary protective clothing or a uniform (i.e. as a minimum it bears a permanent, clearly-identifiable logo), it could be tax deductible. But there is no definitive definition, so you should seek advice in this area if you are planning to spend a significant amount. 
Travelling to see clients and customers

You may claim tax relief on the full travelling cost incurred in the performance of your business or duties. However, no relief is available for the costs of “ordinary commuting” or private travel.  And for most people, the place where they live is a matter of personal choice. So the expense of travelling from home to any other place is a consequence of that personal choice; not a requirement. 

As inferred above, the treatment of travel expenses is a complex and grey area. But provided there are no separate business premises away from the home, travel costs to visit clients should be fully allowable. Depending on the business’ circumstances, you may either apple the HMRC mileage rates or take a reasonable portion of the total, actual motoring expenses.

Don’t allocate an area solely for business use

Loss of Capital Gains Tax relief

You should avoid making one of your rooms solely for business purposes and out-of-bounds to the rest of your family. Doing this could jeopardise an element of your Private Residence Relief (PRR) for Capital Gains Purposes. PRR is a very valuable tax relief as it normally sees any gain on your home reduced to nil.

Liable for business rates

Also, you would make your home vulnerable to a challenge by the Valuations Office for chargeability to some business rates; rather than only domestic rates. There are a number of factors the Valuations Office will consider when they are deciding whether or not the part of your property used for work is liable for business rates. These include: 

• the extent and frequency that the room (or rooms) is used for work 
• if any modifications have been made to the building to accommodate work use.

We can help

As you can probably appreciate, claiming household expenses is an area that is often not treated correctly. But we can help you make sure you’re claiming everything you’re entitled to- without forfeiting any valuable tax reliefs. 

We can also do the following for you:

• Register you with HM Revenue and Customs
• Review the structure of your business and set up an appropriate entity for you if applicable
• Register for Value Added Tax (VAT) and review the schemes available to you
• Set up your payroll arrangements and prepare your payslips, year end forms etc 
• Prepare your year end accounts
• Prepare your personal tax return and advice you of the tax position and any due dates/ deadlines
• Tax planning advice; for both your business and you personally
• Suggest and obtain bookkeeping system for you, including online software

Your TaxAssist Accountant gives you peace of mind that your affairs will be handled accurately and in a timely fashion, which leaves you to concentrate on your business.

Date published 1 Jul 2013

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.