Tax Tips For Home Based Businesses

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More and more business owners are starting up their businesses from the comfort of their own home. There are many benefits to having a home based business: low overheads, flexible working hours, a chance to work in your pyjamas and useful tax incentives. As a professional working from home, you are entitled to some tax relief. Here are some tax tips on a few things you are eligible to claim relief on:

Telephone And Utilities

If you have a line rental that is used solely for business, you may be eligible to reclaim the running costs of your phone, mobile and fax use.

There is the also the option of claiming a portion of the tax on utility bills to cover some of the extra costs of gas and electricity used solely for your work area. These items are all eligible, however, the HMRC expects you to work out the cost of the bills each year, dividing up and separating the expenditure of the private usage against the business usage.

For example, John uses his mobile for both work and private calls. He spends £300 a year on private phone calls and £75 a year on business phone calls. That means that he is eligible to claim tax back on £75 of phone calls.

Rent And Mortgages

Home based businesses can claim an amount of the rent or mortgage interest as a business expense. If you use a spare room, as an office, you can claim this at the end of your tax year, however, if you are working from your kitchen table, you are not eligible for tax back.

For example, if John has four rooms in his home, and he uses one of them for business purposes, he can claim tax on that office. John then needs to find a reasonable method of dividing his costs. This also goes for utility bills, council tax and telephone calls.

Vehicles And Transport

If you use your car for business purposes, you are qualified for a tax deduction.

The allowable expenses on motoring include:

  • Insurance and road tax
  • Servicing and repairs
  • Fuel costs

All of this is based on the annual business mileage that can be calculated by a fixed rate for each mile travelled. Alternatively, it can be worked out by using the records of business and private mileage.

Disallowable expenses for vehicle costs include non-business motoring costs (using the vehicle for private use).

Simplified Expenditure

Alternatively, HMRC has set up a flat-rate based expenditure programme, making it easier to pay tax on home based businesses. This means that there is no need to apportion the personal and business expenses.

If you work 25 hours or more a month from home, you are eligible to pay the flat rate per month. Keep in mind that this doesn’t include telephone or Internet expenses.

Almost anything that you can demonstrate has been purchased and used for business purposes can qualify for some kind of tax deduction. The best thing to do is keep a record of everything you use for your business, and when it comes to filling in your self-assessment tax form, you are able to work out the amount of money spent on the business against your private expenditure.

If you are still unsure of your tax allowances, contact an accountant today.

Photo Credit: InternationalHouseManchester

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