The rise of working from home

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    James Martini

    James Martini UKBF Ace Staff Member

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    “I started my own business to achieve two goals: to make money and to have the freedom over my life that my 9-5 took away, so I work from home,” said UKBF user Maxwell83. He’s not alone. 

    Working from home is becoming increasingly popular, with more than 1.54 million workers based in their own homes in 2018 - up from 884,000 in 2008, according to the Office for National Statistics’ labour force survey. 

    It’s easy to understand why. Running a small business from home gives owners the opportunity to create the most productive environment, while having a better chance of striking the perfect work/life balance by ditching the commute. 

    “Many people get fed up commuting to work,” said UKBF’s Chris Ashdown. “Take a trip by rail to your nearest city at 8am on a weekday, take a photo of the happy crowded train carriage and hang the photo above your desk to remind yourself how the other half spend their days.”

    Larger companies have to foot the bill for occupying an office and the costs of running it. But for startup owners and entrepreneurs, particularly those who are just starting out, the private home can often be the only premises within budget. 

    Working from your flat or house keeps costs down and allows startup founders and entrepreneurs to dip their toes in the water with minimal risk. There are also allowable expenses available, and certain tax implications to consider. 

    Business expenses

    Self-employed people can deduct certain expenses from their annual turnover and reduce their tax bill. What muddies the waters somewhat is working out which business expenses are allowable. 

    The fundamental rule in the eyes of HMRC is that it covers any expense incurred “wholly and exclusively” in the running of a business, but working from home can blur the lines between an entrepreneur’s private life and business life. 

    For example, electricity is needed to power a computer that assists with running a business. Does that mean the Revenue should consider the household leccy bill as a legitimate business expense?

    Claiming against the entire electricity bill on the assumption that it would be impossible for HMRC to detect what the electricity was used for could result in trouble, but that doesn’t mean a claim should not be submitted. 

    Estimating the slice of the bill that applied to work is widely accepted as the best way to go about claiming this expenses, and the Revenue tends to tolerate sensible guesswork as long as accurate records are kept to back this up.  

    Simplified expenses

    Unincorporated businesses that work from home for more than 25 hours a month can benefit from the optional flat-rate system - a far simpler way to claim business expenses.

    Depending on the amount of time spent working from home each month, a claim can be based on the following thresholds in 2019/20. From 25 to 50 hours, the flat rate is £10 a month. Between 50 and 100, it’s £18 a month. Over 100, £26 a month. 

    Simplified expenses have confused some UKBF forum users in years gone by. One free member paid a monthly phone contract, which included internet tethering for business use, but could not work out how much to claim for business expenses. 

    Retired accountant Scalloway came to the rescue: “Calculate how much time you use it for business and how much for personal,” he said. “It only needs to be a fairly rough percentage, not calculated down to the exact minute.”

    Capital gains consideration

    Private residence relief is an exemption from paying capital gains tax if certain conditions have been met when the time comes to sell a home. 

    People who use a room in their house as a designated office can fall foul of a lesser-known capital gains tax trap that reduces this relief, as a room used solely as an office does not qualify for private residence relief. 

    In practice, not many home workers have the luxury of a designated office and it usually has a dual purpose as makeshift gym, spare bedroom, or dumping place for all the boxes from the last move. 

    If in any doubt about what expenses you can and cannot claim, google 'accountants near me', find a practice with the best reviews and reach out. They should be happy to hear from you.