If you own a company and run it out of your home it can be tax efficient to charge the company a rent. However, this does need to be structured correctly to avoid jeopardising your capital gains tax (“CGT”) exemption.

If the company has exclusive use of any part of your home then that part ceases to be your “principal private residence” and some of the gain on the sale of the house could be chargeable to CGT. To avoid this outcome the agreement should make it clear that the company only has use of the space at certain times of the working week and that, for the rest of the time, the room is free for use by the whole family.
 

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Just to confirm that the amount payable tax free to employees working from home, without the need to keep receipts, had risen from £2 to £3 from 6 April 2008.

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For most self-employed people there is usually some use of their home for business purposes. You are then entitled to a tax deduction for the proportion of household expenditure relevant to the business use.

The Revenue has recently issued guidance to “clarify” the calculation of deductions. This suggests that the costs should be apportioned on the bases of:

• area of the total property used in the business;
• usage;
• time the area is used for business use as opposed to any other use.
  

However, where this will not work the Revenue should accept claims made on any reasonable basis.

So how do you apportion home costs?

The Revenue gives several examples of the approach it recommends.

Mortgage interest: The interest may be split where there is a substantial use of part of the property for business purposes.

Insurance: An apportionment of the total premium calculated for usage and area, etc.
Repairs and maintenance: General household repairs are allowable in line with the proportion of business use.

Telecoms/internet broadband, etc: The Revenue’s previous view was that line rental was not allowable. This has now changed, and a proportion of rental and calls is allowed on a reasonable basis; this should be supported by itemised bills.

The guidance includes a number of specific examples, which can be found by clicking here.

One thing to remember is that an individual’s main residence is exempt from capital gains tax on disposal provided it has been used as the main residence throughout ownership. Provided that no room is used exclusively for business purposes, there should be no restriction on the availability of the main residence exemption from CGT.

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Do you use or provide a computer for home working? If so, you may not be aware of a change in HMRC policy.

Following the removal of the tax exemption for the loan of computer equipment by employers to employees (Home Computer Initiative (“HCI”)), HMRC have issued Business Brief 55/2007 which sets out the revised VAT policy in relation to computers provided by employers to employees who work from home.

Previously HMRC had been happy to accept that any private use of such computers could be ignored and that full VAT recovery was allowed. However, with effect from 15/8/07, HMRC will look for evidence that it is “necessary” for the employer to provide the computer in the first place. If this evidence is not available, then an apportionment of input tax will be required to reflect any private use element. It may be possible to agree a fixed percentage with HMRC.

Businesses providing computers under an existing HCI agreement can continue to reclaim full VAT until the agreement has expired (normally 3 years).

In practice, would a business provide a computer to employees unless it was necessary for them to carry out their duties? And how do you monitor the level of private use? Therefore, it seems that the best approach would be to argue that any private use is insignificant and should continue to be ignored.

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