As communications technology improves, working from home has become increasingly popular.
Around 8m people in the UK already spend a proportion of their week working from home, and the trend is expected to continue.
If you do work from home there is the added bonus that you may be able to save money on household bills. Thanks to the government’s attitude towards entrepreneurs, there are many things that HM Revenue and Customs view as expenses which can be offset against tax.
Where should I start if I want to claim money?
Jason Witcombe, certified financial planner at Evolve Financial Planning, says the first port of call for anyone working from home and thinking about claiming expenses is to talk to an accountant.
“This area has some complicated issues and you have to be very disciplined,” he says. “You need to get as much information as possible and remember that there is a big difference in the claims that self-
employed and employed people can make.”
The government’s website offering advice for business has a section on working from home: www.businesslink.gov.uk.
What are the differences for employed and self-employed?
Nigel May, chartered accountant at MacIntyre Hudson, says employees working from home must be able to show that the expenses they have incurred have been wholly, exclusively and necessarily incurred in the course of employment. Those who are self-employed need only show that their expenses were wholly and exclusively as a result of business.
As an employee you must be able to prove that the work you did at home had to be done there rather than in your office. If you worked from home by choice then you cannot make a claim. If you have a regular office-based job you will not be entitled to many of the claims self-employed individuals can make.
What claims can self-employed people make?
The most common claims are deductions in utility bills and communications. The expenses must relate to the use of your home as an office.
What should I be careful of?
Be as precise as possible when making claims. Some people claim a round sum which they think roughly adds up to the expenses incurred but this leaves you open to scrutiny from the Treasury.
The first thing to remember is to keep all your bills. If you have a specific area of your house for business use you can claim a portion of the bills. For example, in a five-room house, if one room is used for work, one fifth of the utility bills can be claimed.
Can I claim mortgage relief?
It is possible to claim deductions on mortgage interest, contents insurance and property insurance if you have part of your house set out for business. To claim these you must be able to identify the work area clearly.
There are a couple of things to consider. Treating your home as a workplace means it will not all be considered as your main residence for capital gains tax purposes.
Remember also that some leases specify that a property is for residential use only and claiming deductions for working on the premises may put you in breach of occupancy rights.
What is the difference between claims for utilities and other items?
Assets which you will be able to take ongoing use from, such as desks or computers, are deemed capital expenditure. The relief is spread out over the lifetime of the item. Relief for things which you use immediately, such as water and electricity, can be claimed immediately.
This is called a “writing down allowance” and is likely to change next year as a result of a proposal that small businesses should be able to claim full relief immediately up to a certain amount. Costs for things such as stationery or postage, which generally have a lifespan of less than a year, are in the main wholly allowable.
Can I claim for items I use not just for business?
No. One contentious area is clothing and grooming. Some argue that it is required for their work, but the sensible line of thinking is that as clothes are required anyway, only specialist clothing such as protective boots and overalls are normally allowed.
What about travel costs?
Travel to and from a fixed place of work is not allowable, but travel that is out of the ordinary is permissible. For cars, capital allowances can be claimed but there are restrictions on the maximum amount of £3,000.
What happens if my expenses are more than my income?
A “trading loss” can be claimed against your other sources of income. If your business has made £5,000 in the first year, but you spent £7,000, you would have a trading loss of £2,000.
You would then have to create a capital allowances expenditure claim, which would allow you to offset the £2,000 against other income, such as investment income or income from the previous year.
Alternatively you could choose not to take it and roll it forward until you make a profit.