A Guide to Working From Home
Working from home in the UK is becoming increasing popular as technology grows. The use of the internet, remote work computer access and use of mobile telephone, internet communication such as Skype and webcams, mean you can be in the office virtually but at home.
We are asked many times what to watch out for and how to set up your home business.
Self Employed v Limited Company
We rarely recommend self-employment as you have a lack of control when tax is due and how much, unless you are planning a simple, small turnover business.
A limited liability company and the ability to control PAYE income and balanced with tax advantages on dividend payments from profits are a must once income to the “business” starts to hit the higher rate tax threshold.
Limited companies also have the advantage of limiting liability on negligence, it is all well and good being self-employed and working from home with a much lower administration requirement but if you are proved to be negligent and suffer a claim as a self-employed person, all your personal assets including your home could be at risk.
Book Keeping and Payroll
Book keeping and payroll is a difficult one. With Real Time Information (RTI) submission to HMRC now required, started April 2013; for PAYE, each time you get paid it enables HMRC to check pay against Universal Credit benefits.
If you are an employee of your own limited liability company you will have to file returns every month when you get paid but as a self-employed person you still, currently, have the flexibility of when you supply information for payments on account and balancing payments for income, tax due etc. Although, for a limited liability company there are online tools offered by both HMRC and payroll software firms to enable you to manage your payroll efficiently whether you go limited or self-employed.
Work From Home Tax Breaks
Working from home also allows you to share some tax breaks on property running expenses. HMRC are quite specific on this.
Expense is allowed for additional heating, light etc. that you use as a result of working at home.
Business Use: Expenses that are incurred solely for business use can be claimed.
Joint Use: Expenses that are incurred for joint business and personal use e.g. telephone line rental, internet cannot be claimed.
Separate Telephone and Internet: We suggest you consider having a separate business line installed and a separate business internet connection, it is then business use only.
Shared Property Facilities: Such as water, heat, light etc., HMRC leave the onus of proof on you. You cannot simply claim a share of the heating bill. It should be calculated based upon the additional cost incurred because you are working at home all day compared to if you were not working at home and did not have the heating on. Standard charges for line rental, gas, electricity, mortgage interest, council tax that you would have incurred anyway cannot be claimed as a business expense.
Converting Outbuildings: You should be careful if you have an outbuilding or garage or other area that you use/have converted exclusively for business.
It has been known for some local authorities to then re-rate this element as a commercial building and as well as paying personal council tax you then also are caught for business rates on the business element.
Insurance is another area to be concerned with and the easiest thing to do is buy a packaged ‘office’ policy that includes basic business property insurance but also the usual Employers and Public liability protection.
Travel: The advantage of working from home is that you are already at your place of work without the need to drive to your usual place of work, that cannot be claimed. So additional travel to meetings, sites, client visits etc. is a useful, claimable expense and at up to 45p per mile for the first 10,000 miles in a private car, and 25p for the next 10,000 miles, it can be a useful allowable expense against the depreciation in the value of the car as well as fuel costs.