Directors often manage their business from home- even if it’s only intermittently. And technological advancements have made the idea of working from home indefinitely a viable option. But expenditure and assets that could or do have a mixture of business and personal use, can often lead to headaches with regards to their tax treatment.
For payments of up to £4.00 per week, you don't need to provide any records of the household expenses you're covering.
For amounts above £4.00 you need supporting evidence to show that your payment is no more than the additional household expenses incurred. If there is any excess, this will need to be added to your wages and therefore subject to tax and PAYE as normal.
Home broadband and telephone bills
The costs will be deductible against the company profits, but the personal tax position will depend on whether the bill is issued in the name of the company or in your own name and could lead to an Income Tax liability and potential National Insurance for you.
If the bill is in the company name, then there will be a deemed benefit to you, which you will be taxed upon and the company will pay National Insurance on.
If the landline is registered in your personal name, then it is regarded as a payment made on behalf of the employee. You should include the line rental and call charges within your gross pay. Therefore, National Insurance and income tax will arise.
There are ways of minimising the tax and administrative burden of benefits. Please speak to us for more information.
Do not rely on your household insurance. Ordinary household insurance policies will not usually cover business risks such as employers’, public, or product liability.
If you start working from home or using your car for business, your household and motor insurance may be invalidated.
Clothing such as suits would be classed as part of your “everyday” wardrobe and is therefore not deductible expenditure for tax purposes. This is the case regardless of whether particular standards of dress are required for your business. It is also irrelevant whether you actually wear the suits on non-business occasions- the only question is whether the clothing would hypothetically be suitable for everyday use.
However, if the clothing is necessary protective clothing or a uniform (i.e. as a minimum it bears a permanent, clearly-identifiable logo), it could be tax deductible. But there is no definitive definition, so you should seek advice in this area if you are planning to spend a significant amount.
Travelling to see clients and customers
You may claim tax relief on the full travelling cost incurred in the performance of your business or duties. However, no relief is available for the costs of “ordinary commuting” or private travel. And for most people, the place where they live is a matter of personal choice. So the expense of travelling from home to any other place is a consequence of that personal choice; not a requirement.
As you can see, the treatment of travel expenses is a complex and grey area- but particularly for directors. But generally business-related, travelling expenses from home should qualify provided it is not commuting to another ‘permanent workplace’, i.e. other premises that are regularly and persistently visited in undertaking your work.
Don’t allocate an area solely to business use
Loss of Capital Gains Tax relief
You should avoid making one of your rooms solely for business purposes and out-of-bounds to the rest of your family. Doing this could jeopardise an element of your Private Residence Relief (PRR) for Capital Gains Purposes. PRR is a very valuable tax relief as it normally sees any gain on your home reduced to nil.
Liable for business rates
Also, you would make your home vulnerable to a challenge by the Valuations Office for chargeability to some business rates; rather than only domestic rates. There are a number of factors the Valuations Office will consider when they are deciding whether or not the part of your property used for work is liable for business rates. These include:
- the extent and frequency that the room (or rooms) is used for work
- if any modifications have been made to the building to accommodate work use.
We can help
As you can probably appreciate, claiming household expenses is an area that is often not treated correctly. But we can help you make sure you’re claiming everything you’re entitled to- without forfeiting any valuable tax reliefs.
We can also do the following for you:
- Register you with HM Revenue and Customs
- Set up your Limited Company or review the structure of your business
- Register for Value Added Tax (VAT)
- Set up your payroll arrangements and prepare your payslips, year end forms etc
- Prepare company accounts and tax returns, and advise of any corporation tax payable and the due date
- Prepare your personal tax return
- Tax planning advice; for both your business and you personally
- Review contracts for your projects to ensure they are IR35-proof
- Suggest and obtain bookkeeping system for you, including online software
Your TaxAssist Accountant gives you peace of mind that your affairs will be handled accurately and in a timely fashion, which leaves you to concentrate on your business.
By Jo Nockels
Last updated June 2013
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.