If you are beginning your career as a contractor, you can reduce the overall cost of running your business by using your home as an office. Contractors who are home-based can now claim the use of their home as an office. This article explains what expenses can be claimed, what the rules are, and how claims should be made.
Stay modest in putting the cost of home office claims
You should be careful in putting in claims above £2 per week for using your home as an office. The Inland Revenue is alert when it comes to people who do these claims.
Designate a specific portion of your house as a home office
You must designate a dedicated workspace in your home as an office. It is not enough just to work on a kitchen table. It is important that your home office is furnished for business purposes. It must indicate that it is a real business hub and not just a portion of your daily domestic chores. If your work does not require a lot of dedicated equipment, then you should rethink hard regarding working from home. Contractors cannot easily claim home office expenses when HRMC sees this scenario.
Obtain business insurance for your home office
To add additional evidence in using your home as an office, you should get business insurance for equipment that you use in your business.
This will be used to support your claim to an Inspector of Taxes. It is also helpful when claiming insurance for your business equipment.
You really work home-based
You must be truly working at home when you file these claims. It is not enough to use ten minutes a week on an invoice or a spreadsheet. You have to generate income from this kind of work to justify claims.
Amount of claim to be filed
You should claim the right proportion of the specific costs that come from insurance, heat, light, rent, and other household costs that arise from using the home as an office. It is not satisfactory to HRMC to estimate a claim.
If the total expenses for a household per month are £200 and there are 5 rooms with one room as the home office, then the claim should only be £40.
There had been cases when accountants advise their clients to make unjustified claims. These have resulted in tax penalties and inquiries.
Contractors can claim expenses as long as these are genuine. Remember, IR people strictly implement the law.
If you need expert advice regarding IR35, you may contact us.