December 19, 2018

Business Advice from Berkshire – Cost of working at home

gravatarIf you work from home, how do you calculate how much you can claim from the taxman? Over recent weeks, one of my clients has been experiencing a tax investigation. I am glad to say that he got the all clear, but in the meantime, I have had the opportunity to chat with a current tax inspector. When I thanked him for sharing some of the Revenue’s view of allowable expenses and what they look for, he said it was all part of the education process. Whatever the reason, I would extend a thank you.

One area we spoke about was the claim for ‘use of home as office’. He took quite a tight rule on this. He was looking to see if other members of the family also used the room, whether the children had their own access to the internet or used the business computer. How much of the home was taken up with storing papers (or was everything scanned in and only taking up space on the computer). Were there outbuildings for the storage of materials and large equipment used in the business, or were they full of push bikes, lawn mowers and other domestic items.

Although he was asking simple questions, you can see that the Inspector is only trying to establish the truth. Considering whether you are crossing the line between tax avoidance and tax evasion. If you issue one or two invoices a month for working at client’s premises, and it’s a long term contract so you are not spending hours surfing the internet for the next client, what percentage of internet/computer use is actually for work? How would you justify 100% business use?

HMRC have recently brought out an option for claims like this called simplified expenses. You can use them only if a sole trader or partnership. If you want to claim use of home, HMRC will expect you to work for more than 25 hours per month from home. If this is all you do, you can claim £120 per year, 100 hours per month, and it goes up to £216 per year and 200 hours per month is £316. So, instead of the flat rate, you can start to calculate exact components, but this involves square feet, number of people, number of working hours etc. If you have staff coming in with their own key, this adds to the justification.

Book coverThe truth is, it is not easy to be accurate, but you must feel confident that you can justify the figure. This is a time when talking these things through with an accountant – and then documenting the method applied can be very useful.

Have a look at your last set of accounts. Talk to your accountant before signing off this year’s. Remember it is your signature even if the accountant has calculated the figures!

Please share your thought on this subject.