Self employed and working from home

mfold27

Hey, hope people here can help. I'm thinking of setting up a self-employed business which I would run out of my home, and I need a few questions answered.

1) Can I claim part of the costs of running my home as expenses?
2) If so, how much can I claim? I'd assume it's a percentage of the costs, but is it a percentage of the size of the home, the amount of hours per day I spend in the home and working, or some other method of calculation?
3) The business is highly unlikely to make any money. Do HMRC have the right to decide if a self-employed business is legitimate, or can I set one up with the sole purpose of making a loss to offset against PAYE tax?

Thanks in advance!

Pennywise

1. Yes

2. As a starting point, the EXTRA costs of running your home are allowable, i.e. the extra power, extra insurance and extra metered water rates etc. Depending on the scope of the business, i.e. how much space, how much time, etc., determines how much, if any, you can claim against your fixed costs such as rent/mortgage interest. If you work just a few hours on your dining room table, you'd be lucky to get any proportion of your fixed costs, but if, say, you devote a room for storage and another room for office, then you're getting into the realms of claiming a fair proportion, based on number of rooms, adjusted by room size, adjusted by time spent, etc. Quite complex but at the end of the day it's self assessment and up to you to claim an "appropriate" amount - HMRC won't argue if you've made a reasonable calculation that can be borne out with some facts of useage etc.

3. The basic rule is that a "trade" has to have an intention to make a profit. If it had no chance of being profitable, borne out by never making profits, HMRC would be within their rights to decline loss relief. If there is a clear intention of operating for purposes other than trade, HMRC can simply decide that some or all your operations are for non trade purposes, i.e. hobby etc., and claim back from you any tax refunds they've given you. Even in areas of doubt, they can restrict relief, i.e. if you buy a digital camera which you claim to use in your business, but in reality, you're using it for holiday photos, it is easy for HMRC to only allow say 10% of its costs rather than the full 100%.

At the end of the day, you're unlikely to get away with getting HMRC to partly finance your home or a hobby or interest of yours. If you're doing it for charitable purposes, you'd be better registering as a charity or working with a registered charity instead. You've also got to factor in the costs of running a business, such as professional fees (accountants etc), website, office supplies, bank charges, insurance - not to mention any planning or building regulation restrictions, covenants, etc., on using your home for business.

John_Pierpoint

If you dedicate part of the property to the business, you risk a charge to Capital Gains Tax when you come to sell.

The local council can be totally two faced by charging business rates while trying to close you down for infringing the planning rules.