Warning to companies to meet PAYE deadlines
Chartered accounts firm Rawlinsons offers top tips for using your home as an office
Many entrepreneurs and small business owners make the decision to save or cut costs by setting up a home office. This can slash overheads and help those preferring a more flexible approach to working hours. If you’re organising your business around a young family for instance having an office at home gives you the opportunity to catch up on emails later in the evening.
The tax man does make some concessions for those whose home is used as a dwelling and a work place.
What is allowable depends on the individual situation. Here’s what you must consider:
1. Even if you have a business premises elsewhere, if you retain office space in your home you are entitled to a deduction for a part of the household expenses provided that there are times when a part of your home is used solely for business purposes.
2. A single utility bill for your home where you have an office does not mean the whole expenditure is disallowable. The part of the cost attributable to business use is allowable.
3. Claiming for the use of utilities up to ¬£3 per week will not be questioned by HMRC.
4. Tax law says an expense is only allowable as a deduction if it is incurred ‘wholly and exclusively for the purpose of the trade’. That means that when part of the home is being used for the business that is all it is used for at that time. Of course, it is highly unlikely you will have separate utility bills so the total bill must be apportioned. This may be done by using the area used in relation to the whole property, the usage (appropriate where supply is metered) or time.
5. Capital Gains Tax implications – any gain made on your main residents is generally free from Capital Gains Tax but the exemption is restricted if and to what extent that part of the home is used ‘exclusively’ for the purpose of a trade or business. Using part of a home for business will not compromise the CGT relief if that part is also used for domestic purposes.
6. Home improvements are not allowable as capital expenditure.