If You Operate From Home What May You Claim Back In Expenses And Is It Worth The Bother?

February 25th, 2010

If you Work From Home, either as a self employed individual or as an employee, then you might be looking at what tax breaks might be available to you because you are making business use of some of your personal assets in the operation of the firm . An Internet Business for example might be operated from home taking up a dedicated room which needs heating and lighting. Also computers and any other office equipment such as photocopiers or printers and fax machines are devouring your personal electricity. Most online jobs demand the same amount of operating costs when run from home so it is enticing to consider assessing all these costs, which would not have come about if you did not Work From Home, join them together as business expenses and try to claim them as allowable against tax. It is a very reasonable argument that you should not have to pay such expenses out of taxed income and indeed most accountants would agree with this belief. Your internet business, any online jobs you have, or any other work from home situations should not be covered out of your own purse, in particular after you have paid tax in the first place.

But be cautious how far you push this. For example you may be tempted to add to this list of expenses a percentage of your council tax bill. What if you need an whole separate place to enable you to work from home, a place dedicated to your Internet Business or Online Jobs. This place is used for nothing else so you can logically argue that if you didn’t work from home, you wouldn’t need this spare place and so your house could be smaller and your council tax bill thereby reduced. You may argue that your business should therefore foot the bill for a section of the council tax bill and that this should be allowable against tax on profits made from your business. You could work out the amount of council tax reclaim as the proportion of the floor area of your Work From Home room to the whole floor area of your house. Let’s say that is equal to 10%, you could argue that 10% of your council tax bill is directly attributable to your company and therefore us a business expense allowable against profit. This might very well be agreeable but the risk lies in the future.

Suppose that you had claimed as above for a number of years, regularly setting off that 10% and lessening your tax bill accordingly. Then one day you sell your house and you realise a very large profit. (If you own a house for a number of years then you almost definitely will). In the normal way of things any profit made from the appreciation of a property that has been used only for residential purposes is tax free. But if the property has been somewhat of the profit made on the transaction is owing to your company, rather than you as an individual, and therefore income tax should be paid on that segment. The fact that you had often made claims for council tax would be decent evidence to support any such claim by the revenue and the net effect could be a large and unavoidable tax liability far greater than the savings you made over the years.

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