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Doing your homework
Page 48
Page 49
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With many small haulage operations being run from home, we explore the numerous tax benefits available for such businesses.
Words: Martin Mann For most owner-drivers, and even small fleets, the firm's office is likely to be at home and you'll be pleased to know that the taxman accepts this situation. With increasing numbers of individuals working from home, either full-time or part-time, the taxman will actually give you tax benefits if certain criteria are met.
So what expenses can be claimed by home-workers for tax purposes? The answer depends mainly on whether the individual is employed or self-employed.
CM discovers why there is a difference, and sets out the position for self-employed home-workers.
First, some general points should be noted: • Business expenses do not need to be separately invoiced.
• Tax relief may be available, even if a room or area is used for business and non-business purposes at different times, but not if it is used for business and non-business purposes at the same time. • Capital expenditure (for example, on improvements to a property, so that it can be used for any purpose) is not allowable, but capital allowances may be available on plant and machinery costs.
• If part of a home is used only for business purposes, capital gains tax could be due on part of a gain on disposal, but this doesn't often occur, and can normally be avoided by ensuring there is some regular non-business use.
Depending on the circumstances, there are three possible ways of apportioning an expense when claiming.
The first is based on area — that is the proportion of the area of the home or of the number of rooms used for business purposes.
Second, the actual consumption of services such as gas, electricity and water used when working. And the third is time — the proportion of the day when something such as a room is used for business purposes
Two sets of rules
The rules on tax-deductible expenses are contained in two separate pieces of legislation, each with long-winded titles. The rules for the self-employed can be found in the Income Tax (Trading and Other Income) Act 2005, and those for employees are in the Income Tax (Employment and Pensions) Act 2003.
Self-employed claims
Self-employed individuals (including partners in partnerships) can claim expenses that are incurred 'wholly and exclusively' for the purposes of a trade.
Strictly speaking, this means that if an expense is incurred partly for business purposes and partly for non-business purposes, no part of the expense can be claimed. However, in relation to the use of a home, HM Revenue & Customs (HMRC) will normally agree to an apportionment of most costs, where a part of the home (a room or a specific area) is used solely for business purposes at least some of the time.
For small claims, a reasonable estimate will be accepted where the amount involved does not warrant working out the allowable proportions of various expenses. For example, a nominal amount of £3 per week might be claimed where only a short time is spent dealing with correspondence, or writing up records etc.
Once a claim has been agreed, to avoid the need for annual calculations, claims in later years for the same percentage of costs are likely to be accepted, provided circumstances are unchanged.
Employees
Employees can only claim expenses that are incurred 'wholly, exclusively and necessarily in the performance of the duties of the employment: The extra 'necessarily' condition means that it is harder for employees to claim tax relief for expenses. Where working at home is concerned. HMRC takes the view that an employee cannot claim tax relief for any unreimbursed household expenses if the employer provides alternative facilities but the employee works at home by choice.
In addition, the duties performed at home have lobe 'substantive', which excludes some claims For example. HMRC does not regard background reading or preparatory work as substantive.
The table below lists the main types of home-related expenses and also gives examples of the claims that self-employed home-workers could make. •