Small Business Tax Advice: What Tax Reliefs Can You Claim If You Run Your Business From Home?

If there’s one area of tax law that confuses self-employed clients, it’s what tax reliefs can you claim if you run a business from home.

This is a question that we accountants are often asked.

The reason for that is the rules aren’t exactly the clearest, so it’s no wonder that clients get confused.

The problem arises mainly when trying to distinguish between what is classed as business and what is regarded as personal use: the former obviously may qualify for some tax relief, the latter most certainly won’t. The question is how do you distinguish between the two? Hopefully this quick précis of the current tax position will be of help.

Household bills.

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

  • If there is only minor business use, like writing up the business records at home occasionally, you can put through a reasonable expense estimate with little risk of dispute by HM Revenue & Customs. As a guide, this tends to be about £4 per week.
  • If you are based completely from home, then you can apportion the household bills such as gas, electric, water etc by dividing the total costs by 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 and mobile telephone and a reasonable proportion of the line rental, in addition to expenditure on internet connections if the connection is used for business purposes.

Insurance.

Ordinary household insurance policies will not usually cover business risks such as employers’, public, or product liability. So it’s best to take out a separate policy to cover any potential risk. If you start working from home or using your car for business, your household and motor insurance could potentially be invalidated.

Clothing costs.

Normal ‘everyday’ clothing will not be deductible for tax purposes. 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.

Travelling to see clients and customers.

You may claim tax relief on the full travelling costs 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.

The treatment of travel expenses is another complex area and the source of much confusion. However, 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 apply the HMRC mileage rates or base your calculation on a reasonable portion of the actual total motoring expenses.

Don’t allocate an area solely for business use.

Ideally you should avoid designating one of your rooms as solely for business purposes. Doing so 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. Additionally, you could make your home vulnerable to a challenge by the Valuations Office for business rates liability, rather than just domestic rates liability. The Valuations Office will consider a number of factors 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.

How can Steven Glicher accountants help?

As you can probably appreciate, claiming household expenses is an area that is often treated incorrectly. We can help you make sure you’re claiming everything you’re entitled to, without forfeiting any valuable tax reliefs.

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