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In today’s economic climate, moving your business into your house or allowing your staff to work from their own homes could provide you with a way to reduce the costs of running your business plus allow you and your employees more flexible working. Sounding good? Well, here are a few of the things you should be aware of before taking the plunge.
Space requirements. Clearly the amount of space you need depends on the business you are in. You may need an office, a work room, storage space and/or a waiting room. Separating the business part of your home from the personal living space is advisable as it’s all too easy to be drawn into work with 24/7 access! Check too that your mortgage provider, your tenancy agreement and/or your insurance company all allow you to work from home.
Working schedule. It’s important to be disciplined, and to structure your working day as much as possible. Splitting your time between working hours and relaxation breaks can be a real challenge. You need to let your family and friends know your work schedule too, so they know the ropes and don’t interrupt you with requests for lifts to football or help with homework. Consider installing an easy to understand warning light system – red for “do not disturb” and green for “it’s ok to come in and see me just now”.
Distractions. Clearly if you have children, they can be a distraction. So make sure you schedule your home appointments or phone calls during quiet times e.g. when younger children are napping and older children are at school or doing homework. Also consider having quality time with your kids for an hour when they come home from school before you restart work – that way they won’t feel left out and may give you more space.
Equipment. Make sure this is secure and properly insured. Costs of setting up a home office in your own or an employee’s home, such as buying a computer, printer, desk and chair can be tax deductible for you/the employer by claiming capital allowances provided the expenditure is “wholly, necessarily and exclusively incurred” to enable you/your employees to carry out employment duties. Where there is a private use of the asset then only a proportion of the capital allowances will be claimable by self employed individuals and taxable benefits could arise on directors and employees.
Household costs. If you are running your own business from home then you’ll be incurring extra household costs (from keeping lights on for example). Running costs such as electricity, gas and cleaning and fixed costs such as rent, council tax and mortgage interest can be claimed where rooms are set aside for business use by a business entity trading from home for a specified period e.g. between 9am and 5pm (or all of the time). The costs are proportioned on the basis of area and time. Beware however – if rooms are used exclusively for business, and not just for a specified period each day, then this could result in a capital gains tax liability arising on the future sale of your home. To ensure your home remains exempt from capital gains tax, it’s important to use the business room for another purpose, and be able to demonstrate this to the tax man, perhaps by having a sofa bed in the waiting room, for occasional use by friends and relations, by having a TV and an easy chair in the corner of the office for relaxation when not working etc... Note, for directors and employees who are working at home on behalf of a business trading elsewhere then, providing certain conditions are met, additional running costs incurred as a result of using the home for work can be claimed as “additional household expenses” from that business. Payments of up to £4 per week are automatically tax free. Amounts in excess of this must be supported by evidence which is not always easy to do and adds a heavy compliance burden on the director/employee.
So you can see from the above general guide that working at home has advantages and disadvantages. Scenarios can differ, particularly in the all important area of tax deductible expenses so make sure you speak to us first before you set up. Contact Carol Wright at firstname.lastname@example.org.