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HM Revenue & Customs has moved to clarify the costs of working from home which self-employed IT professionals can now claim against the income of their business. Updated guidance on the Revenue website confirms a new expenses policy that lets the self-employed offset their ‘fixed costs’ of the home has been introduced. So, a proportion of cleaning, mortgage interest, council tax and home insurance costs can be recouped, if an area of the home is solely in business use for a significant amount of time. However, the home is eligible only if its sale would not attract capital gains tax; the business area resembles an office when in use and the worker qualifies as being “self-employed.” Despite cheer among IT contractors, a business advisor yesterday pointed out that some IT contractors are employed – either through their own personal service company or through an umbrella provider. A spokesman for HMRC said: "The BIM guidance... does not cover employees. So, someone working for a limited company as an employee would not be covered". However a chartered accountant believes “it would be difficult for the Revenue to argue [the policy] couldn’t apply to directors of limited companies". “[It’s] important to realise that this policy only applies to those contractors actually working from home,” Simon Dolan, the managing director of SJD Accountancy added in a statement. “It’s not enough just to make a couple of phone calls and write up your books at home – you would need to spend a significant proportion of your working week actually working at the house.” Angela Beech, of Blick Rothenberg Accountants told the BBC’s Working Lunch programme that the taxman will be looking for an area that has the appearance of an office (so a desk, chair and storage not a laptop on the kitchen table). She stressed that HMRC will accept claims only if the amount is “reasonable in relation to the business.” “So you can't claim that you work 20 hours a day in the office or that the area used is a large proportion of the living area of your home.” On the Revenue website, which lists examples of eligible claims, the tax authority agreed, saying it is “only likely” to investigate where the amount claimed is “significant or inconsistent with the nature of the taxpayer’s business.” But all the examples of taxpayers complying with the new policy, one of which is below, are “not intended to be prescriptive,” as “each case will be dependant on the facts,” HMRC said. “Gordon, an architect, dedicates a room solely for use as his office between 9am and 5pm daily. The room contains a workstation, office furniture and storage for his drawings. He uses the room for an average of 4 hours each day, though often this is spread over his working 8 hour day as he has a number of regular site visits to make. In addition it is not uncommon for Gordon to accommodate clients in his office to discuss plans, outside of normal hours. ”The room is available for domestic use outside of business hours and his family regularly make use of the room for around 2 hours each evening. ”After apportioning costs by reference to the number of rooms in the house, Gordon calculates the room uses £300 of variable costs (electric and oil) and £600 of fixed costs (council tax, mortgage interest, insurance). In apportioning these costs by time Gordon claims £680 in total, made up of 4/6 of variable costs (£200) and 8/10 of fixed costs (£480). “The claim equates to 75% of the total costs attributable to the room (£680/£900), which Gordon views as a more straightforward but equally reasonable basis for future claims, should his circumstances remain unchanged.” Ms Beech reportedly said the figures used by HMRC were “modest”; she said if Gordon’s mortgage was £300,000 with interest at 6%, then he could detract £1,440 in interest alone – a total tax saving of £590.40 “This seems to be clarification over what has been a bit of a grey area over the last few years,” Mr Dolan said last night, reflecting on the updated policy. “You always used to be able to claim mortgage interest, rent; insurance and so on if you worked from home, then they [HMRC] argued that you couldn’t. “There was a way around this by using the Schedule A rental income rules, and so I suspect that the Revenue having recognised that have changed their minds again and formally recognised that the fixed costs are now allowable.” Jun 20, 2008 Email this article Printer friendly page Previous Page
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