Normally tax for self-employment is worked out by taking a percentage from the profits that the business makes, which is the money earned by the business with expenses subtracted. Expenses are usually costs that are “wholly and exclusively” for the purposes of trade.
If some business is carried out from home, then some tax relief may be available. HMRC agree that a deduction for household expenses is acceptable, provided that part of the home is solely being used for business purposes.
This does not mean that the business part of the costs must be billed separately or that part of the home must be permanently used for business purposes. However it does mean that when part of the home is being used for business, that’s all you use it for.
HMRC will accept that costs can be apportioned and if the amount is small they will usually not be interested in it. For example you can claim £3 per week for use of home, that’s £156 per year with no questions asked.
Although if you plan on claiming any more then there are some things to consider such as:
The proportion in terms of area of the home used for business services, how much is consumed where there is a metered or measurable supply like electricity and how long you use that part of the home for business purposes.
Generally HMRC will accept a reasonable proportion of costs such as council tax, mortgage interest, water rates, rent and general repairs. Additionally allowable costs may include business telephone calls, a proportion of line rental and internet connection if it is used for business purposes.
Any equipment at home, such as a laptop or desk, can have a costs proportioned under capital allowances claims based on the estimated business usage.
Travel from home
Another consequence of working from home will be the impact on your travel costs. The cost of travel from home to work is generally disallowed, as it represents the personal choice of where you live. This will not be affected by doing some work at home, however, if there are no other business premises, then travel costs to visit clients should be allowable. So it really depends on where the business is run from.
Selling the home
Normally when you sell your home, any profit made is exempt from tax if it is your primary place of living. However, when part of the home is used exclusively for business, then that portion of the house will not be exempt. Occasional and minor business will be ignored for this purpose.
To summarise, it is possible to claim some extra 'home' expenses to reduce your tax, but you need to be clear about the rules, keep good records and be reasonable about how much you claim.
If you need more information about this subject then feel free to call me on 01761 436 436.