02 Mar 10 If You Work From Home What May You Claim In Expenses And Is It Worthwhile?

If you Work From Home, either as a self employed individual or as an worker, then you could be considering what tax breaks might be accessible to you because you are making business use of some of your personal assets in the operation of the company . An Internet Business for example might be operated from home taking up an isolated room which needs heating and lighting. Also computers and any other office gear such as photocopiers or printers and fax machines are using up 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, lump them together as organisation 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 view. Your internet business, any online jobs you have, or any other work from home situations should not be paid for out of your own purse, in particular after you have paid tax in the first place.

But be cautious how far you go with this. For example you may be tempted to add to this list of expenses a portion of your council tax bill. Envisage you need an completely different room to enable you to work from home, a room dedicated to your Internet Business or Online Jobs. This room is used for nothing else so you can logically argue that if you didn’t work from home, you wouldn’t need this additional room and so your home could be not as big and your council tax bill thereby lessened. You may argue that your company ought to 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 calculate 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 amounts to 10%, you could argue that 10% of your council tax bill is directly attributable to your firm and therefore us a business cost allowable against profit. This could very well be agreeable but the hazard lies in the future.

Suppose that you had claimed as above for a number of years, regularly setting off that 10% and reducing 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 undoubtedly 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 partially of the profit made on the transaction is due to your firm, rather than you as an individual, and therefore income tax should be paid on that part. The fact that you had frequently made claims for council tax would be strong evidence to support any such claim by the revenue and the net effect could be a huge and unavoidable tax liability far greater than the savings you made over the years.

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