Tax relief for running a business from home

New guidance has been issued by H M Revenue & Customs with regard to tax relief in respect of the use of private home for business purposes. This replaces the somewhat sparse information that previously existed.

Even if the self-employed carry on most of their business elsewhere they are still entitled to a deduction for part of their household expenses provided that there are times when part of their home is used solely for business purposes. If it was only minor use, for example, writing up the business records at home, a reasonable estimate may be accepted without detailed enquiry.

Different methods of apportioning items like expenditure will be relevant, depending on the type of expenditure.

Fixed Costs

Some costs relate to the whole house and have to be paid even if there is no business use. These include such costs as Council Tax, Mortgage Interest, Insurance, Water Rates, General Repairs and Rent. If part of the home is set aside solely for business use for a specific period then part of these costs is allowable. It will normally be appropriate to apportion these expenses by area and time.

Insurance

If the business is covered by a separate Insurance Policy then the cost of that policy is allowed in full and no part of the household policy is allowable. Otherwise, an appropriate part of the household premium can be allowed.

Council Tax

This is a tax on property and in principle it may be allowable in those instances where other property based expenses are deductible.

Mortgage Interest

If part of the home is used solely for business then an appropriate part of the mortgage interest is an allowable deduction.

Rent

Part of the rent is an allowable expense when the home is rented and part is used solely for business. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for business purposes.

Repairs and Maintenance

A proportion of the cost of general household repairs and maintenance is allowable in line with the proportion that the house is used solely for the business. Examples include the general redecoration of the exterior or repairs to the roof. Repairs that relate solely to part of the house that is not used for the business, such as decorating a room not used for the business, are not allowable. Equally, if a room is used solely for business purposes then the cost of redecorating that room is wholly allowable.

Running Costs

There are some expenses where the total bill may vary with the amount of business use. These include cleaning, heat and light, metered water etc. If the claim is small and there is only minor business use of the home that will be accepted if it is based on any reasonable basis. Where there is significant business use it will be appropriate to apportion such expenses by reference to the facts.

Heat, light and power

A proportion of the heating and lighting costs of a room used at times solely for business purposes is allowable. You should take into account the number and nature of any power consuming items involved, for example, a commercial photographer working from home using specialist studio lighting will have a much higher business expense for electricity than a trader writing up records at home.

Metered water charges

In the case of minor business use of the premises, such as writing up records, there is no business use of water and so none of the water charge is allowable.

Telephone

The cost of business calls is allowable. Also allowable is a proportion of the line rental based on the proportion of business use to total use.

Broadband

Expenditure on an internet connection is allowable to the extent that the connection is used for business purposes. Where there is mixed use the approach used for telephone rental should be followed.