Were always on hand to help our clients on working from home expense claims, however this can be a tricky topic, so we like to make sure that our clients understand which additional expenses they can claim and the records that they need to keep, which helps when that time of year comes around again.
Keeping good records is at the heart of helping us out, this way you are assisting us in keeping your tax at the level you’d like it to stay.
We want to avoid unexpected contact from the tax man as best we can, as bills that have been triggered from years down the line do not count for a great day, these can include several years’ worth of tax, interest and penalties.
Being self-employed, the tax that you have left to pay is based upon profits that the business makes. This means that gathering up expenditure is critical so that we can set these against your profits. The issue’s that we face with HMRC are often around the rule that our business expenses should ‘wholly and exclusively’ be for the purposes of the trade. In terms of applying this practice and to make it easier to understand we have covered some of the key areas below.
Use of the home
Often those that are self-employed may be surprised to realise that they could be working from home more than it may seem. Working from home has benefits when it comes to maximising our expenditure, as there are tax reliefs available.
HMRC accepts that even if the business is carried on elsewhere (for example in a shop), a deduction for part of the household expenses is still acceptable provided that there are times when part of the home is used for business purposes alone. To quote the revenue: ‘If there is only minor use, for example writing up the business records at home, you may accept a reasonable estimate without detailed enquiry.’
To avoid any confusion, when HMRC say ‘wholly and exclusively’ this doesn’t necessarily mean that expenses must be separately billed, or that part of the home must constantly be used for business alone. For example, you may keep your appointment books in your kitchen draws and often book in customer appointments at the table, this does not mean that you’ll be crucified for stuffing your kids’ faces with jam on toast in before the school run at the same table. All this means is that when part of the home is being used for the business, that is the sole use at the time.
HMRC are happy with accepting that an estimate of a few pounds a week is a nice even ground when it comes to claiming working from home costs, which is often an easier route to go down rather than splitting up household bills.
There are other options for those that work from home often, and feel that a few pounds a week is not a nice even ground, in this instance the factors below are considered:
- the proportion in terms of area of the home that is used for business purposes
- how much is consumed where there is a metered or measurable supply such as electricity, gas or water and
- how long it is used for business purposes.
What sort of costs can I claim for?
HMRC tend to feel happy with fairly proportioned common household costs like council tax, mortgage interest, insurance, water rates, general repairs and rent, as well as cleaning, heat and light and metered water.
There are other costs that you may use day to day while working from home, including the costs of business calls on the landline and a proportion of the line rental, as well as internet connection expenses.
However, if a client only does a little bit of work now and then in terms of taking calls and some paperwork, it is sometimes easier to claim the use of home allowance. This is something that all accountants should be doing to maximise a client’s expenditures.
As explained above, if there is a small amount of work done at home, a rounded weekly figure is usually fine but for substantial claims a more in-depth method may be needed.
Mike works from home and has no other business premises; he uses a spare room from 9am to 1pm and then from 2pm until 6pm. The rest of the time it is used by the family. The room represents about 10% of the total area of the house. The costs including cleaning, insurance, council tax and mortgage interest are about £8,000. 10% = £800 and 8/24 of the use by time is for business, so the claim could be £267. Electricity costs total £1,500, so 10% is £150 of which 8/24 = £50. On top, a reasonable proportion of other costs such as telephone and broadband costs would be acceptable. The key to Mike’s claim will be that he keeps the records to prove the figures and proportions used.
Capital Gains Tax on your Home
Capital gains tax contains a tax exemption for the sale of an individual’s private home, known as principal private residence relief (PPR). Where part of the dwelling is used exclusively for business purposes, PPR relief will be disallowed to the business proportion of the gain. However, HMRC makes clear in their guidance that ‘occasional and very minor’ business use is ignored.
The main points to take away today is that there’s a couple of options available when it comes to working from home expense claims and that you should keep good records to make life easier for yourself when it comes to tax time. It’s good to know that as your accountants, we will always be claiming maximum expenses for you.
Talk to us if you want to find out more about how to claim working from home expenses.