Trading from home

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Trading from home
  • The wholly and exclusively rule
  • Apportioning the expenses
  • Apportioning fixed costs
  • Apportioning Internet and phone costs
  • Specific deductions
  • Capital gains tax
  • Business rates
  • Travel expenses

Many businesses can be run from home. This brings obvious advantages, such as lower costs and flexibility. Working from home is a particularly attractive option for fledgling businesses; they can then purchase or lease premises at a later stage, when they have established a customer base and taken on employees.

Self-employed people who work at home are entitled to deduct part of the costs of running their home from their taxable profits. There may also be CGT and business rates implications. Each of these are discussed below.

Those who work as employees or directors are treated less generously. For more on this see Homeworking in the Non-taxable benefits guidance note in the Personal tax module (subscription sensitive).

The wholly and exclusively rule

Expenses are deductible for tax purposes if they are incurred ‘wholly and exclusively for the purposes of the trade’.

ITTOIA 2005, s 34(1)

Relief is also allowed where any ‘identifiable part or identifiable proportion of the expense’ is incurred wholly and exclusively for the purposes of the trade. For more on ‘wholly and exclusively’ see the Wholly and exclusively guidance note.

ITTOIA 2005, s 34(2)

‘Wholly and exclusively’ does not mean that part of the home must be set aside and used for business purposes to the exclusion of all other activities.

As long as part of the home is used for a period of time exclusively for business purposes, the costs incurred on that part of the home during that period of time are deductible.

There is also no requirement that the costs be separately billed. Instead, costs are apportioned between the period of solely business use and the remainder of the time covered by the invoice.

Apportioning the expenses

The factors to be taken into account when apportioning an expense include:

    More on Acquiring premises: