Do you work from home?

5 February 2014

If so, here are some suggestions for you from Lee Taylor of Pro Tax Accounting.

When you run a business from home or simply use part of your home for work, your company or business can pay you a tax-free allowance to cover household expenses.

The taxman in his generosity says that you can claim a flat figure each week, but are there circumstances where you can justify more?

What is the flat rate?

We can’t say that the taxman isn’t generous. Whilst household bills have risen between 5% and 10% over the last year, he’s increased the tax and NI-free allowance by 33%. The bad news is that this increase amounts to just £1 per week in real terms and starting from 6 April 2012 businesses are able to pay up to £4 per week to directors and employees without this counting as a benefit-in-kind and hence becoming taxable.

What if I want to claim more than the flat rate?

If you think that you should be charging your business a higher amount, then you need to justify this by putting together a quick calculation to back up your claim. The simplest way of approaching this is to add up how much utilities for your house cost you in a year i.e. include council tax, house insurance, gas, electricity and water bills. Divide the total by the number of rooms you have in your home; this will give you a best guess at the cost of running a room. If you have a dedicated office then claim this amount; if you use a room for business purposes during the day, but then for domestic purposes during the evening/weekend then perhaps it would be reasonable to claim half this amount.

You can also claim for the cost of redecorating your office space at home, or any other expense incurred in keeping this room usable.

You may be told that you can also claim a proportion for any external work that you have done to your house, or that you can include your mortgage interest payments with your utility charges in the calculation mentioned above. Whilst this is in fact correct, by doing this you do run the risk of treating your house as being partly business premises for several years. If there comes a time when you want to move house, it is quite possible that the Revenue will then expect you to pay capital gains tax on any profit you make on the proportion that you have treated as business premises. In short you can’t have it both ways. By all means claim these capital items as they occur if you wish but be prepared for the possible consequences and always seek professional advice before doing so, as often there are small adjustments which can be made to your claim which can alleviate potential future problems.

One of the ways we guide our clients through this part of the taxation maze is by using a worksheet, which we provide to them. This interaction with our clients has often instigated discussions which have led to further opportunities for tax savings! We are happy to make this worksheet available without obligation to readers of this article. The worksheet helps you calculate a tax efficient claim so if you would like a copy, please contact Lee Taylor on 01206 512476 or email.

This is just one of the ways we are helping business owners create more fun, more profitable and more successful businesses and clearly Pro Tax Accounting have a great deal to offer so if this or any other area of taxation or business are giving you a headache please give us a call.