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Home Based Rules & Business Expenses
Claiming ‘home office’ expenses should only be considered by those freelance contractors genuinely operating their business from home, not those who occasionally work from the dining room table!Before even thinking about claiming home office business expenses it is important to ensure that you are working on a series of contracts outside IR35. If you cannot show that you are genuinely operating a consultancy, any home office expenses that you claim are likely to be disallowed in any HMRC audit. It is important to arrange a professional evaluation of the terms and conditions of the contract as well as a working arrangements to guarantee IR35 status. Unless you are an expert in the area, it can be rash to just rely on your own evaluation.
Dedicated Work Area
If you are going to genuinely work from home you need to set aside a dedicated work space used solely for business purposes. Ideally you should convert a bedroom/utility room into an office and furnish it with business machines, furniture and stationary. The area should be used solely for business, no personal activities should go on there.For your dedicated work area you should include items such as business:
- Machines: Computers, Fax Machines, Printers, Scanners, Shredders, Laminators etc
- Furniture: Filing Cabinets, Desks, Chairs, Whiteboards etc
- Utilities: Business Telecoms, Internet Connection etc
- Insurances: Employers Liability, Public Liability, Professional Indemnity etc
It is also a great idea to create a floor plan of the building clearly showing business and domestic areas. Photos may also be a good idea. If you rent the house/flat try to get a floor plan signed by your landlord.
Home Based Work
You also need to actually do a sufficient amount of work from home. If you set up and claim for a home office but work standard hours at the client site, as demonstrated by your timesheets and emails, you will need to prove you do significant additional work at home. It’s not sufficient to work a few hours at home a week, you need to be doing the bulk of, or at least a significant and material amount of, your work from your home office to genuinely claim the expense.Making a Claim
When making a claim you should ensure that it is as accurate as possible. For example, if you used one room as a home office in a 3 room house which was rented for £900 per month it may be reasonable to claim £300 per month as a home office cost. Utility expenses such as electricity, gas etc should be worked out in the same way.Documentation and evidence will help to prove to any HM Revenue and Customs Inspector that a genuine home work area exists and was required. If you are not able to supply suitable documentation and proof the expense could be disallowed and you may have to pay backdated tax and national insurance, and interest/penalties thereon, on the expense. This could be expensive if the claim is for a large amount.
It is important to be 100% confident of your IR35 status and that you are claiming a genuine expense.
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