Self-employed - "working from home" tax relief

Dragonman

Hi

I have started running a small mail-order business from home on a part-time basis. I want to claim a proportion of our domestic running costs (heating, council tax, etc.) against my taxable profits, but I have two concerns.

First, according to the HMRC website, I can claim a proportion of our domestic insurance costs against the profits (provided I don't have a separate policy covering the business itself). However, an HMRC technical advisor told me today that I can't (ie I can only claim a proportion of heating, lighting and council tax).

Second, I don't want to shoot myself in the foot and prejudice any later claim to private residence relief (from CGT). The same technical advisor told me that this "wouldn't be a problem". However, my reading of the HMRC website suggests that it could be a problem if I use any part of my house 24/7 for business purposes (ie I would risk losing private residence relief in respect of that part). This wouldn't be a problem if (eg) I was using a room as a day-time office, but I do store stock at home (which obviously is there all the time).

Any thoughts would be gratefully received. Many thanks.

mrs_deadline

I'm not a tax expert but do work from home full time, and it's better not to push your luck I think. I'm not too bothered about CGT but I definitely want to stay below the business rates radar!

I only claim premises costs where the bills are obviously bigger because of working from home. So I don't claim a penny towards council tax because I'd have to pay it anyway, wherever I chose to work. Nor home insurance because they don't actually charge me extra just because of working from home.

I do claim relief on a nominal proportion of power costs, to cover heating and lighting during the day. (And all the coffees ...) But it's not all that much by the time you've calculated it down to just one room of the house and 40 hours of the week.

As long as you only claim for genuine extra costs and remember to keep it consistent from year to year (or if you can't, at least explain sudden variations using the comments box on the Tax Return) you shouldn't get any bother from the tax people.

Murdina

the test is whether or not an expense is wholly and exclusively for the purpose of your business. So mrs_deadline's approach is spot on. In practice. some reasonable apportionment of expenses by reference to rooms or whatever would usually be acceptable - so long as you make sure of course you have retained all relevant invoices and can show how you worked out your claim.
On CGT, it's generally taken that unless you have one part of the house which is dedicated to the business completely eg an office, consulting room or similar, the relief is not prejudiced. I'd be inclined to say that, unless you had reached the point where part of the house was liable to business rates you are pretty safe.
HMRC help line staff mean well but to be honest have not necessarily got the in depth level of training to answer all these questions.

Dragonman

That's really helpful, Murdina and Mrs Deadline, thanks very much! The business rates point hadn't occurred to me at all.