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Claiming Expenses When Running a Business from Home
There are more people working from home in the UK than at any time since the onset of the industrial revolution.
And working from home makes a lot of sense for small businesses. It’s just about the cheapest possible option and of course, the advent of the internet and ever-improving broadband speeds makes it a more viable option than ever before.
So if you’re working from home, what expenses can you legitimately claim to offset against profits and minimize tax?
Well the quick and easy answer is to find yourself a good accountant. S/he will be able to advise you on all legitimate expenses and keep abreast of any budgetary changes. The general Inland Revenue rule for claiming tax relief on business expenses is that you can reclaim costs that have been ‘wholly and exclusively’ incurred in connection with your trade.
When working from home, this is a little more complex as many expenses are mixed. Your phone, for example, will be used for both business and personal use. In such cases, you can legitimately deduct the business element if it can be separately identified. In general, the Inland Revenue will allow claims for a home office as long as they are reasonable.
Some accountants may suggest a calculation of the proportion of your home used for business purposes - and a claim back that proportion of your household expenses for electricity and/or gas bills for example. HM Revenue & Customs provide a great deal of advice on their website for what are or aren’t legitimate expenses. Here are some real-life examples of what claims can be made. This includes examples of what fixed costs can typically be offset against tax, including mortgage interest.
But be careful; there are a number of dangers. For example, if your home is dedicated for business use, it could attract the attention of the local authority, who may try to apply business rates. However, If that space is for mixed use; personal and business use - then business rates should not be applied.
Insurance and mortgage companies will often ask you to declare that your home is used only for residential purposes, but if you’re running a small home office, and take out business insurance for your business-related items, this shouldn’t be a problem.
And if you need to finance your small business, lenders will often be impressed by your determination to minimize costs by working from home – and by your track record of success in doing so.