Use of home as office

I'm often surprised when I hear from people that their accountant hasn't talked to them about the tax relief they can claim for 'use of home as office'.

Let's clear up a few misconceptions:

• If you run your business from home you CAN claim a deduction from your taxable income;
• The size of the deduction should depend on how much you use your home for business purposes;
  
• There will rarely, if ever, be any capital gains tax consequences of claiming this deduction;
• Different rules apply if you run your business through a Limited company;

The calculation of the claim
There are essentially two methods of calculation – the simple method (which I prefer) and a “detailed calculation” method which is more appropriate for people who spend a great deal of time working from home - especially if the room(s) used for business purposes are more than 20% of the rooms in the house..

The simple method, being a rough and ready calculation, merely uses a weekly flat rate amount of, for example, £10 per week and multiplies this by the number of weeks in the year.

A detailed calculation would take each main room in the house into account – excluding bathrooms and kitchen but including the hall, stairs and landing as one room. You would then calculate all the home running costs and the relevant fraction or percentage applied to the total. Relevant costs would include council tax, gas, electricity, water rates, insurance (building and contents) and cleaning. Mortgage interest would not be included however.

What does your accountant say?
If your accountant knows that your business is based at home, they should have raised this issue with you. Hopefully they have given you good advice so as to keep your taxes to a minimum.

You might well hope that your accountant would give you definitive advice as to:

• which expenses you can claim and which you can't claim for tax relief;
• how much of each type of expense you can claim;
• what the taxman will allow.

If only accountants could do that with some certainty. This often isn't possible for reasons that I'll explain in a future blog.