Home-workers: claim from the taxman and avoid the VAT trap

Low Pay

Small Business News – 18th February 2009

Broadband, the internet and mobile devices such as BlackBerrys and personal digital assistants have made working from home much easier.

But ACCA (the Association of Chartered Certified Accountants) is urging home-workers to claim all the tax reliefs available to them from the taxman and take care of VAT pitfalls.

If running a business from home, there are various tax reliefs available. Chas Roy-Chowdhury, head of taxation at ACCA, says:

“If you have to work from home, HM Revenue & Customs’ website explains the benefits which are payable for home workers – tax relief is available for the extra household expenses that have to be paid if working from home.

Typically these extra expenses include:

  • The extra cost of gas and electricity to heat and light your work area
  • business telephone calls
  • use of a car – a percentage of tax relief is available based upon how much business use is incurred. In addition a percentage of the 20% capital allowances may also available on the vehicle, based upon the percentage of business use.
  • Homeworkers may also be entitled to a deduction for items used for their business – either a capital allowance deduction for computer equipment or a straight forward deduction for some items such as stationary and paper
  • VAT is often overlooked but once your turnover exceeds or is expected to exceed £67,000 you must register
  • Note registration is based upon turnover and not profits
  • You can also make what is called a voluntary registration below this turnover level – be warned you will need to charge VAT on your invoices

Also, there are other tax reliefs available for those who are an employee of a company, but have to work from home:

  • A flat rate deduction of £3.00 per week (from 2008-09) for each week worked at home. This doesn’t include the cost of business telephone calls
  • A larger amount if extra expenses are higher than £3.00 – but the taxman will have to see how these figures have been calculated

Chas Roy-Chowdhury adds:

“HMRC makes it very clear that you will not be able to receive tax relief on domestic expenses that are being paid, such as mortgage payments. And no reliefs are available when it comes to using services such as phones and internet which are also used for personal usage. There has to be a clear demarcation.

Mr Roy-Chowdhury concludes:

“It is important to claim all tax reliefs if you are running a business from your home, or if you are working as an employee at home; however small the relief payments may be, it is still important to claim them. That old adage of looking after the pennies and the pounds will look after themselves is certainly relevant in this case.”

For further information on home working tax allowances please go to: http://www.hmrc.gov.uk/incometax/relief-household.htm

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