Smaller businesses can have their taxes based upon the cash that passes through their books, rather than using complex accounting calculations that are utilised by large businesses. This is referred to as ‘cash basis’. Businesses using this method can also use simplified arrangements for claiming expenditure when working out taxable profits for income tax purposes. Flat rate expenses can be claimed for business costs, for things such as vehicles, when working from home and living at business premises.
What do I need to consider when working from home?
Owners of a business that run their operations from home can claim flat rate expenses for business use of the property. Meaning that it’s unnecessary to work out the proportion of personal and business use, for example when considering overhead costs such as utilities. Instead, there will be a monthly deduction allowable – if certain criterion is met.
|Number of hours worked per month||Applicable amount|
|25 or more||£10.00|
|51 or more||£18.00|
|101 or more||£26.00|
The number of hours worked means the hours that are spent exclusively on core business activities. This can be production of goods/services, maintenance of records, marketing and obtaining new business.
For example, if Kelly has worked from home for 70 hours for 10 months and worked 110 hours for two months. He can claim the following amounts against his income for tax purposes:
10 months x £18.00 = £180.00
2 months x £26.00 = £52.00
Total amount claimed = £232.00
What happens if I am living at the business premises?
Some businesses will use their premises as their home. For example, this works well with hotels and B&B’s. Since the premises is used for both business and private use, the owner of the business may make a deduction for non-business use.
Therefore, the allowable deduction will be the amount of the expenses incurred, less the non-business use amount. The non-business amount is amount is the sum of the applicable amounts for each or part of a month, falling in the period in question I.E the tax year.
|Number of relevant occupants||Applicable amount|
|3 or more||£650|
For example, Joseph runs a B&B and lives there all year round with his civil partner.
He spends £10,000 on business expenses.
She can thus claim a flat rate deduction for private use as follows:
12 months x £500 per month = £6,000
Expenses claimed against income £10,000 – £6,000 = £4,000
If you claim a flat rate deduction, you are also still able to claim a separate deduction for fixed costs, such as council tax.
HMRC offer an expense checker which is available here (https://www.gov.uk/simplified-expenses-checker)
What records should I keep?
It Is recommended that you keep the following records when utilizing the simplified expenses regime:
- Business miles for vehicles
- Number of hours worked from home
- Details of people living at the business premises over the year
- How much can be claimed and include on self-assessment tax return
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