Running Your Business From Home
Know What You Can Claim!
Posted by Maureen Windridge on 14/02/2013
My role as a Bookkeeper in Milton Keynes means that I'm regularly posed lots of questions from my clients and a common theme is from those who run a business from home and need to gain a good understanding of what the implications are in terms of tax and expenses claims ...
if you run your business from home, ensure you understand how to claim correctly
There are two things to which you need to give consideration when opting to run your business from home; these are your Business Expenses and Capital Gains Tax.
Let's start by looking at Business Expenses. There are 2 ways of claiming expenses for running your business from home: the Lazy option and the Apportionment option.
If you use your home for short periods of time you can claim a fixed amount of £4 per week. This is considered so small that HMRC will not make any enquiry into your tax return for it. This is ideal if you only do a few hours per week work from home - maybe a plumber doing their invoicing etc. Employed people can also claim this if they do some work at home and their employer is agreeable. The Lazy option results in an annual claim of £208.
This option is best if you work from home more than a few hours per week. For this you'll need to do a bit of calculation to find out how much you can reasonably apportion to business use:
Calculate your annual costs of:
You then need to calculate the amount of your home used for business. The easiest way to do this is to count all the rooms in your home (excluding hall, bathrooms and toilets). Use this figure to work out how much of your home is used for business.
We have a 2 bedroom house, with one living room, and one kitchen. We use one of the bedrooms for business purposes. The portion use is 1/4 for area.
Next we need to assess the time spent on business. So let's assume we use the room for 7 hours per day for business purposes and 2 hours in the evening our partner uses it for a hobby room. The portion of use is 7/9 for time.
Our costs are:
So you'll see how taking a bit of time can benefit you. We have claimed £892 more than the Lazy Option by taking some time to calculate our usage accurately. Bills need to be kept safe as the Revenue have a right to check your calculations.
Now let's look at Capital Gains Tax. As long as you don't claim 100% of your time in the above calculation you will not become liable for Capital Gains Tax when you sell the house. The key is to ensure that you use the room for more than just business.
Hopefully I have given a clear explanation of how running your business from home should be approached from a tax perspective; do feel free to speak with me for more information on +44 (0) 1908 692378 or alternatively you can email me.
Until next time ...
I consider myself to be incredibly lucky because I am a bookkeeper. At the age of thirteen I did a three year course in three months and passed with distinction. Many years have gone by since then and I am still fascinated by the process of double entry bookkeeping. A process developed over 500 years ago by a venetian monk called Luca Pacioli.
Many people would like a machine that they could put all their paper work into at one end and it would come out the other end all sorted totalled and balanced. I'm glad it hasn't been invented because it would take all the fun out of my work!