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Tax benefits of working from home

If you are beginning your work-at-home life as self-employed, you'll be pleased to know that this doesn't mean endless form-filling and tax returns. There are certainly some financial benefits that will make any additional bureaucracy worthwhile.

There are many resources online that offer you comprehensive information and advice if you are new to being 'self-employed'.  As you are working for yourself, you are running a micro business, living off your drawings and paying tax on the amount you have left from your sales once your expenses have been deducted. You will also be responsible for paying your own National Insurance contributions. 

It is therefore important to keep a daily records of all your incoming receipts and outgoing payments. Many payments that you make for business expenses are tax-deductible. 

Some items however, like entertaining, are “specifically non-allowable”. You will also be unable to claim any relief on capital expenditure, which covers money spent on buying, creating or improving a business asset that you keep in order to earn profit.

If your business turns over enough annual revenue, you may need to register for VAT, which mean that any VAT you pay for supplies or expenses will be returned to you by HMRC. The flip side of that is that you will need to charge VAT on all sales, and this additional amount will all go into HMRC's coffers. 

Some of your personal expenses will need to be paid whether you are working from home or not - rent, mortgage interest, insurance, council tax, water, general repairs, heating etc. However if you have set aside part of your house specifically for work, i.e. a spare room, then a proportion of these home costs can be set aside as business expenses. If you need additional insurance just for your business, then all of that is allowable as an expense by the taxman.  If you have a dedicated telephone line for your business, then that cost is an allowable expense. If you are sharing this line with the home, then only a proportion can be set aside as an expense - i.e. only the business calls. So you get the general picture - only those services or share of services that can be reasonably attributed to the business can be included on the expense sheet.

There are a number of other areas that could be tax deductible for you, but a lot of these will depend on your situation. We would urge you to keep on top of your business records to ensure that you have evidence and information regarding every aspect of your income and outgoings. This will make your life easier completing your end-of-year returns and should HM Revenue & Customs enquire about your tax credits and benefits, you will have proof to back up any eligible claims.

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