Tax savings for home workers

If you are a small business, and you work from home, you may be eligible for a tax rebate for your home expenses including mortgage interest. You may even be able to save money on your rates.

Why I need this

Why pay tax if you don’t have to? In the current economic climate saving money is at the top of everyone’s list, and since tax is a major cost to us all, any HMRC approved ways to save money has to be good thing!

How does it work?

If you use a specific part of your house or a room for a set time each day, you may be able to apportion your costs for Mortgage Interest, Heat, Light, Rates, Water, Cleaning, Telephone, Internet and any other household bills. To work out what you can claim back you need to calculate when the room is used, between what hours and what percentage of the property it is.

For example:

Joseph, an architect, dedicates a room solely for use as his office between 9am and 5pm daily. The room contains a workstation, office furniture and storage for his drawings. He uses the room for an average of 4 hours each day, though often this is spread over his working 8 hour day as he has a number of regular site visits to make. In addition it is not uncommon for Joseph to accommodate clients in his office to discuss plans, outside of normal hours.

The room is available for domestic use outside of business hours and his family regularly make use of the room for around 2 hours each evening.

After apportioning costs by reference to the number of rooms in the house, Joseph calculates the room uses £300 of variable costs (electric and oil) and £600 of fixed costs (council tax, mortgage interest, insurance). In apportioning these costs by time Joseph claims £680 in total, made up of 4/6 of variable costs (£200) and 8/10 of fixed costs (£480).

The claim equates to 75% of the total costs attributable to the room (£680/£900), which Joseph views as a more straightforward but equally reasonable basis for future claims, should his circumstances remain unchanged.

What else should I know?

You may be able to get part of your house re-rated as business rates and claim small business relief on the rates.

You need to be aware that the percentage of your property used for business will be chargeable to capital gains if you sell (as that percentage will no longer be your principle private residence), but as prices are currently dropping, this could actually work in your favour giving you a capital loss for tax purposes to offset.

Further information

www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm
www.accounting4biz.co.uk