Homeworking for the self-employed

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The working environment has changed immeasurably recently with a lot of us pressing spare space into use as an office – be it a spare bedroom or in my case a gap between the washing machine and the cat bowl. Whilst the £6 per week allowance for the employed has received a lot of press coverage, this month we look at the allowances (fixed or actual) for the self-employed.

Fixed deductions are offered by HMRC which require no specific expenses to be kept, merely a record of the hours worked at home. The allowances start at £10pcm for 25-50 hours worked per month, £18pcm for 51-100 hours worked and finally £26pcm for working at home for 101 hours or more per month.

Alternatively, you can use a proportion of actual expenses incurred, though more record keeping is involved. First, arrive at a suitable apportionment of the total costs involved. This is often based on usable floorspace of living areas (including bedrooms) but excluding “dead” space such as corridors, bathrooms and often kitchens.  Garages can be included depending on their actual use. You would then use this business/personal apportionment for the total running costs of the house including utilities, mortgage interest (but not capital repayments), council tax, and insurance. Repairs and maintenance can also be claimed depending on how they apply to the room used for business. For example, a general roof repair would be apportioned for business use, but a maintenance to the living room (when you use the spare bedroom for an office) cannot be claimed.

On the downside, if you used, for example, one room exclusively for business (representing say 10% of the total floor area) upon selling your home you would find that that room would not be covered by the CGT main residence exemption as you had not used that room as part of your home.  Whilst 10% of the total capital gain may not give rise to much of a taxable capital gain (especially after taking into account the annual CGT exemption), you may find that it still needs to be reported separately under the new 30-day reporting rules – additional administration if nothing else.  To counteract this, try to ensure that the room is not used exclusively for business (and of course show that you are restricting the costs you are claiming for in addition).

Finally, excessive business use of a home can cause you to have to pay business council rates.  Whilst this is more likely for those who regularly have clients visiting their home, have a “shop window” or put prominent signs outside their houses advertising their business, it is still something that ought to be borne in mind.

For further information on any of the above points or to discuss your affairs generally, please do not hesitate to contact Robin Beadle.