Running your Business from Home

There are two things you need to give consideration to when opting to run your business from home. They are your business expenses and Capital Gains Tax.

Business Expenses

There are 2 ways of claiming expenses for running your business from home. The lazy option, and the apportionment option.

Lazy Option

If you use your home for short periods of time you can claim a fixed amount of £3 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 joiner doing their invoicing etc.

Apportionment Option

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 calculations to find out how much you can reasonably apportion to business use.

Calculate your annual costs of:

  • Council Tax
  • Mortgage Interest (not capital repayments)
  • Rent
  • Gas
  • Electricity
  • Home Insurance

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.

Example:

We have a 3 bedroom house, with one living room, one kitchen and one dining room. We use one of the bedrooms for business purposes. The portion use is 1/6 for area.

Next we need to assess the time spent on business. So lets assume we use the room for 7 hours per day for business purposes and the kids use it for 2 hours to do homework. The portion of use is 7/9 for time.

Our costs are:

Mortgage interest£2400
Insurance£ 360
Gas£ 700
Electricity£1000
Council Tax£1200
Total Costs£5660

Claimable Expenses = £5600 x 1/6 x 7/9 = £726

You'll see how taking a bit of time can benefit you. We have claimed £570 more by taking some time to calculate our usage accurately.

If you are a basic rate taxpayer you would save £114 by calculating your expense this way, or £228 for higher rate tax payers.

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. Make sure you use the room for more than just business.

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