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Kirk Rice Blog

Home Expenses – Self-EmployedWritten on July 5, 2017 by Kirk Rice LLP

Home Expenses – Self-Employed
Taxing Times Questions

The Question:

I am self-employed and I run my business from home. What home expenses can I claim against my profits?

Kirk Rice LLP answers:

Where an individual carries on a trade and undertakes some of the trading activities (or work) from home, they are using their home (or part thereof) for trading purposes, and accordingly may claim a portion of the associated home costs as business expenses. The proportion attributable to their business are deducted from their business income when calculating trading profits.

There are rules that must be applied in determining which home expenses may be deducted, in particular:

  • capital expenditure (such as property improvements or other assets) are not allowable (but capital allowances may be claimed on items of plant and machinery e.g. computers, printers etc.)
  • home expenses not wholly and exclusively incurred for the purposes of the trade are not allowable.

For individuals who work from home, the home has two functions: it is where they live as well as being where they undertake part (or all) of their trade.

For an expense to satisfy the wholly and exclusively rule, it must be incurred solely for the purposes of the trade (i.e.solely for business purposes). Where an expense has duality of purpose, a non-business purpose as well as a business purpose, no part of the expense will be allowed. However, tax law provides that where an expense is incurred for more than one purpose, a deduction is not prohibited ‘for any identifiable part or identifiable proportion of the expense, which is incurred wholly and exclusively for the purposes of the trade’.

Accordingly, in order to claim a deduction for any part of home expenses which do not satisfy the ‘wholly and exclusively’ rule outright, it is necessary to be able to identify a definite part or proportion of the expense which satisfies the wholly and exclusively requirement. If there is no objective yardstick by which the trade element can be distinguished from the non-trade element of the expense, then no part will be allowed.

There are a number of different methods by which household costs may be apportioned between trading and other use, and the onus will fall to the taxpayer to demonstrate that the expenditure claimed is reasonable in the event of any challenge by HMRC.

However, where there is more than one method of arriving at an apportionment, some methods may be more appropriate than others, depending on the expense. Factors to consider include:

  • floor area or number of rooms used for the business
  • usage (electricity, gas or water)
  • time

These methods of apportionment are then applied to the home expenses which are to be split between business and non-business use.

HMRC have agreed a simplified flat rate expense in recognition of the use of a home as an office which is less onerous to calculate, but usually less generous. The flat rate deduction is dependent on the number of hours worked from home per month by the self employed.

Below is a link to our factsheet which gives a bit more detail on this article.

 Homeworking Costs for the Self- Employed Factsheet

 

If you would like more advice regarding this issue or any other tax matter, please contact one of our Tax Partners, Graham Jennings  on 01344 875 000 in our Ascot office or Hadley Baldock on 0208 789 8588 in our Putney office or email info@kirkrice.co.uk.

If you would like to receive Money Matters electronically, simply email info@kirkrice.co.uk stating Money Matters Article in the subject heading and we will add you to our distribution list.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.

 

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