Deductable Expenses

Many small businesses operate from home, and increasingly employees, in particular owner directors, are using their home as their employment base.

In either event it should be possible to establish a claim for tax relief on a proportion of the home expenses. There is no specific legislation to cover this, other than the standard provisions relating to deductions from income, and it is a question of applying general principles to create a justifiable home expenses claim.

Owner Directors & Employees Generally

You should be able to make a claim if, as an employee, you are necessarily required to provide facilities at home at which to perform some or all of the duties of your employment. Then you should be able to get a deduction for the following expenses:

• A proportion of rent (if any); council tax; light and heat costs; and cleaning, where a room is set aside exclusively for your work. The normal basis is to use a fraction based on the total

• number of rooms in the house and the time spent working, but if the room you are using is a lot larger than the others this should be reflected in your claim

• To claim tax relief on the same proportion by reference to mortgage interest (over and above the MIRAS limit of £30,000) is problematical, and the Inland Revenue will probably resist a claim on the grounds that the mortgage interest would have been paid whether or not you were working from home. Indeed they won a case before the Commissioners on this very point and any possible claim for a proportion of mortgage interest might have to be limited to the situation where you move home and take out a new mortgage.

• If a requirement to work from home is written into your employment contract so much the better.

• However, it is not just a case of saying that you do some work from home, there needs to be some structure and necessity.

Self-Employed

Many small businesses start off from the home base, to reduce costs, and certainly there should be a substantial tax relief claim where you use your home as your business base as a self-employed person.

As for employees, you should look at the room or rooms you use for business purposes and then make a claim on a proportionate basis.

You may well have more scope to claim a proportion of mortgage interest as a self-employed person based at home, particularly when you move home as you could show that some of the mortgage

Relates to the business proportion of the home. The interest would then be tax-deductible as would any other business expense and professional advice may well be needed to get the best deal.

Capital Gains Tax

Ordinarily, when you sell your private residence you would not pay any capital gains tax (CGT) as the gain would be exempt. However, when part of the house is used for business (or indeed employment) purposes, there is the possibility that a proportion of the gain would not come within the normal CGT exemption. This may not present any problems, as of course everyone has a CGT annual exemption, but to avoid any possible restriction of the normal CGT exemption you could claim tax relief on the home costs by reference not to 100% of a room but to, say, 90% business use of a room, however such a statement needs to be a matter of fact. This would reduce the annual claim but it may avoid CGT problems.

Bookmark with:

• Delicious
• Digg
• reddit
• StumbleUpon

Don’t know what this is?

Read the 50connect Guide To Social Bookmarking.