If you are self-employed and work at least partly from home then you are entitled to include part of the running costs of your home in your accounts.  But how much?

You have 2 options as to how to work out how much you can claim.

1. Flat Rate Method
   
   If your sales are under the VAT threshold (currently £83,000) and you are self-employed then you can use this method. You simply work out how many hours a month you spend on average running your business from home and then include a fixed amount in your accounts, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

The flat rate covers the running costs of your home; you can also claim a proportion of the fixed costs and your phone/broadband as per option 2.

2. Actual Costs

This method requires a little more effort, but it may give you a higher figure and therefore save you more tax.  Under this method, you need to apportion the running costs of your home on a “fair and reasonable” basis between those that are personal and those that relate to the business.

This is usually done by reference to the number of rooms you have in your house and the amount of time you use them for business.  There is no laid out formula though and therefore how you allocate costs will vary from business to business.  Keep any workings you have done so you can back up your figures to HMRC if necessary.

The costs you can actually claim can be spilt into fixed costs, running costs and phone/broadband.

Fixed Costs

Mortgage interest (not capital) or rent

Council tax

Insurance

Water rates

Running costs

Electricity

Gas

Repairs and maintenance

Cleaning
For example, assume you work from your sitting room 8 hours per day 4 days per week.  Your total fixed costs are £6,600 per year and your running costs £1,500.  You have 6 rooms in your house. A reasonable allocation of the fixed costs would be £6600 x 1/6 x 4/7 x 8/24 = £210.

An allocation of the running costs could be £1500 x 1/6 x 4/7 x 8/12 (as gas etc not used during the night) = £96

The phone and broadband is claimed on a usage basis only, so if you use your internet 50% business, 50% private you can claim 50% of the cost, including line rental.

If a property repair works solely to the area that you use for business, you can include the full cost in your accounts – for example, your office roof needs repairing.  If the repair is to the whole house – then claim in proportion as above.

So claiming costs of working from home is not as simple as it sounds.  The flat rate method will give you a quick answer, but the actual costs option may give you a higher figure.  If you need any further help then please contact Rosie Forsyth at Wilkins & Co.

Note – these rules only apply to the self-employed and not to owners of limited companies.

This week we are looking at company cars and explaining how they are taxed on both the company and the individual.

When a car is made available to an employee, or member of his household, by an employer, he will be charged tax on the value of the car as an employment benefit if he also has private use of the car.  It doesn’t matter how the company finances that car, it is still a benefit in kind to the employee.

The amount of tax the employee pays depends on:

• The list price of the car plus accessories (not the price the company paid for it), and
• Its CO2 emissions

Using this table, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/532303/TC2b.pdf

each level of Co2 emission is given a percentage and you then multiply that percentage by the list price to give you the taxable benefit.  This value is effectively “additional salary” on which you will pay income tax.   Diesel car owners have a 3% supplement over petrol owners – this was due to be scrapped but will now remain until 2021.  The percentages are set to increase by 2% each year, making company cars even more expensive in the future.

So, as an example, in 2016/17 my company provides me with a diesel car with a manufacturer’s list price of £30,000 and CO2 emissions of 165g/km.  The appropriate percentage is 33%.

The benefit in kind is 33% x 30,000 = £9900.  If I am a basic rate taxpayer, I will therefore pay £1,980 in income tax on this car in this tax year, and if I’m a higher rate taxpayer – £3,960.

If the company also pays for all my fuel (personal and business) there is a further tax charge.  This is worked out by multiplying the same percentage by a fixed amount agreed for each year.  For 16/17 the amount is £22,200 – so for my car above – the additional benefit is £7,326 and my tax bill £1,465 or £2,930.  You need to do a fair few miles in your car to make this worth having!

For the company , they will pay class IA NIC on the value of the benefit, so each year they will pay 13.8% x 30,000 = £4,140 for my company car, though this and the running costs are tax deductible in the accounts.

So a company car is often not a cheap option and you should work out whether it is the right option for you.

Having a company van may be tax efficient than a company car as there is a fixed benefit of £3,170 – but there are strict rules about what is a van – and what is a car!

If the car is a genuine “pool car” then it can be provided tax free – but the qualifying conditions of being a pool car must be met.  These are:

The car

• Is used for business purposes and any private use of the car is incidental.
• Private use should account for no more than 5% of the car’s annual mileage on an irregular basis.
• The same car not used exclusively by one or two employees in a tax year.
• The car is not normally taken to an employee’s home at night.

HMRC will look at any pool car arrangement closely – and will expect mileage logs, written agreements, place for keys to be kept at work, employees personal cars etc so if you do think you have a pool car – make sure your records accurately detail its movements!