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Is working from home right for your business?

Is working from home right for your business?
Tuesday, December 05, 2017

Long commutes stuck in rush-hour traffic or packed in overcrowded train cars. Hiked-up business rates with eye-watering rent bills plus utilities and broadband payments on top. These are all completely understandable reasons why many new business owners choose to set up shop from their own homes.

 

Do you really need that separate office after all? You’ll save money by working from home and you can even claim money back from your tax bill.

 

Here, the Panthera team have set out everything you need to know about running your business from home.

 

Internet and telecoms

 

We’re sure that you don’t want your five-year-old accidently answering a call from an extremely important client. Watching Vonage’s advert will make any business owner working from home wince at the thought of it!

 

That’s why many home-workers see the value in adding a separate business-only phone line.

 

If you get a business-only line, then the cost of the line rental, linked broadband services, and any call charges can be deducted fully as business expenses. Just make sure you set up your additional line and broadband subscription under the company’s name, and that the company pays all of the direct debits for these accounts.

 

If you use your existing landline, you won’t be able to claim anything back on the line rental even if you only make one personal phone call a year. You can still claim back on any calls made for business purposes, but you’ll need to keep an itemised list of those calls in case HMRC want to see evidence. If your broadband is linked to your existing domestic-use landline, you’ll only be able to claim back a proportion of the bill linked to actual usage for business purposes.

 

Mobile phones are treated the same as your landline, so if you want to be able to claim all costs back, your business will have to sign the contract and pay all of the bills. It may be worth having one phone for personal use and one phone for business use or if your card has a dual-SIM facility, having both cards mounted within the one phone.

 

Computers

These costs can be a bit trickier to work out.

 

If you use your computer both for business and personally, you can claim the costs back. But, if you do, you’ll have to pay personal tax on the cost of the computer as it will be classed as a taxable benefit in kind.

 

When you buy a computer, laptop or tablet through your limited company and use it personally, your firm will also have to pay National Insurance Employers’ Contributions on the value of the purchase.

 

Panthera tip: All computer-related costs under £500 can usually go into the revenue column of your accounts. Anything costing £500 or over will need to go into your capital expenditure column to keep HMRC happy. But, you’ll be able to claim annual investment allowance for the value of the hardware or software if the amount you’ve spent on assets this year is less than £200,000 or you can include it in future tax years if you’ve spent £200,000 or over.

 

Running expenses and bills

 

When your home is your office, you may wonder how to separate the cost of running your household and a business.

 

If you have a mortgage on your home, whilst you won’t be able to claim back on any of the capital repayment, you can actually reclaim a proportion of the interest.

 

How does that work? When you took out the mortgage on your home, what you owe will have been charged through a system known as amortisation. So, at the start of your mortgage, you will have paid a higher rate of interest. As you pay off more of your mortgage over time, the percentage you pay in interest will decrease. You can see how this works here.

 

Say you have a £250,000 mortgage for 25 years at an interest rate of 5%. Your very first mortgage payment will cost £419.81 with £1,041.67 in interest. Your last payment will cost only £6.06 in interest, but the capital will be £1,445.41.

 

If you work from home, you can only claim back on the interest you pay. So you’ll benefit a lot more if you’re at the start of your mortgage than later on.

 

Alternatively, if you rent your home, you can claim back a proportion of the rent costs.

 

In either case, you can include council tax and household insurance in your expenses column and claim back a proportion of the costs.

 

Working out what’s deductible from your mortgage, rent and ongoing bills

 

Say you live in a house with seven rooms; a kitchen, living room, dining room, three bedrooms and a designated office space for working from home.

 

When working out what you can reclaim, you would divide your bills by seven. This is because only 1/7th of your home is primarily used for business purposes. The rest is considered residential.

 

Here’s how that would look.

 

Bill Original cost Number of rooms Deductible as expenses
Mortgage capital £200 7 £0
Mortgage interest £700 7 £100
Council tax £150 7 £21.43
Household insurance £30 7 £4.29
Landline rental (shared with household) £20 7 £0
Landline rental (separate second line) £20 7 £2.86
Landline calls (shared with household) All business-related calls 7 All business-related calls
Landline calls (separate second line) All business-related calls 7 All business-related calls
Broadband (connected to single line) %age of bill used for business 7 %age of bill used for business
Broadband (connected to business line) £25 7 £3.57

 

Only a few expenses can’t be claimed back 100%. The proportion you can claim back on other costs depends on two factors.

 

First, the number of room. In this example, your electricity would be shared with the household, so it would be reasonable to claim back 1/7th of the bill for the room used for business purposes.

 

Then, you would take into consideration the number of hours you spend doing work in your home office.

 

If you spend 40 hours a week or more doing ‘revenue-generating activity’ at home, in most cases HMRC will consider it reasonable for you to deduct the entire amount of the bill.

 

Anything less than 40 hours and HMRC will most likely expect you to pro-rata the amount you claim back. So if you claim back £100 of your mortgage interest from working from home 40 hours a week, you’ll have to halve that amount if you only work from home 20 hours a week.

 

Business insurance

 

If your business equipment and assets are stored at home, you may think your home insurance provides enough cover.

 

Many home-based entrepreneurs choose to take out business insurance to cover the loss, theft or damage of their business-related equipment and assets. Not only does this provide better financial protection, it’s another piece of evidence to show HMRC you work from home.

 

Business insurance does, however, have its drawbacks.

 

Let’s say you successfully claim back £1,000 in expenses from your home-related working this year and you’re a basic rate taxpayer, you won’t have to pay 20% tax on the £1,000. That means you’ll save a total of £200.

 

However, if your business insurance bill comes to £200 or more, the tax you’ve saved will be wiped out by the cost of your insurance.

 

The flat-rate scheme

 

Doing all of these calculations, to many, will seem overly complicated or involves just too much hassle. Another option you might consider is HMRC’s flat-rate scheme for those working from home - but it’s not the most generous scheme offered by the taxman.

 

Here’s what it looks like.

 

Hours worked at home per month Amount you can claim per month
0 to 24 £2
25 to 50 £10
51 to 100 £18
101 or more £26

 

Working from home

For a personalised estimate of how much you could claim back by working at home, call us on 01235 768 561 or email the team at enquiries@pantheraaccounting.co.uk.

What our clients say

For us, there is nothing better than a happy customer. Here are just a few that let us know how much we mean to them.

Pete Dungey

Simple, efficient and most importantly, hassle-free.

We found Panthera via our search for a Xero expert. We knew the software we wanted to use, and needed a forward-thinking accountancy partner who could get us up and running, and teach us the ropes moving forward. Tory and her team have always been on hand to answer our questions, and help us to grow as a business, particularly during periods of big change, such as becoming VAT registered. They are always on hand to alleviate any concerns and help to keep our records in order, which makes our year-end accounts an absolute breeze! Being based in Bristol, our relationship is entirely email based, alongside one consolidation meeting at year end - this keeps things simple, efficient and most importantly, hassle-free.

Pete Dungey Kaleido Grafik Limited
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The support and service we receive from Panthera Accounting is very good. Everything from regular meetings, a prompt e mail response and the transition of our Xero software (which we find very pro active indeed) has and is all remarkably efficient. We find Panthera talk our language and make any process as painless and easy as possible.

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We got in touch with Panthera Accounting by way of a recommendation; we haven't looked anywhere else since. They are an extremely professional yet relaxed group of people. We were slightly daunted by the idea of accountants but Panthera brushed aside y the stereotypes. They are very understanding when answering any questions we may have. They are completely efficient, offer sound business advice, and are fantastically priced. We will continue to recommend them.

Ash & Tim Lane Starveacre Fencing
Jayne Johnson

An Asset to my Business!

The whole team at Panthera are great! Working with them has been a huge support to my growing business. They help me to understand the numbers I need to know. They give me technology solutions like Xero so that I can process things quickly and have access to my own figures. They are quick to reply, highly knowledgeable, nothing is too much trouble and as well as making sure that everything is compliant and on time, they are enthusiastic, professional and fun to work with.

Jayne Johnson Better People
John Baker

Absolute joy - they provide a first class service on every level

Working with Tory and the team at Panthera is an absolute joy - they provide a first class service on every level; from simple Xero issues through to more complicated tax enquiries, they’re always on-hand to help me get it right. I’m certainly not their biggest customer, but I’m always made to feel like their most important one.

John Baker BKR Solutions
John Castle

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I would like to say that Panthera Accounting have helped me with my business accounts for more than 4 years now. They have consistently offered an excellent competitively priced service that works both professionally and in such a friendly way that I would highly recommend them to everyone considering using their services.

John Castle Ilexanna Limited & Birch Castle Homes Limited
Jonathan Morrison

They are always there to answer queries and sort out issues

I had been with Mr Dunn for 20 years when upon his death Panthera took over the business. They now play a bigger part in the running of my business, they do all the stuff that has to be done but I don't like doing ie book keeping, VAT, wages, and returns. They are always there to answer queries and sort out issues and make sure all Tax deadlines are met. Their costs are fair, service is great and I have and would highly recommend them.

Jonathan Morrison Wallingford Builders
Pippa Scott

Professional, friendly and personal service.

Panthera Accounting have gone above and beyond the call of duty to guide and support our Company. They offer a professional, friendly and personal service that can take the stressful and sometimes frightening feelings out of running a business. They have guided us through the working of Xero and have offered “teaching sessions” on the day to day running of the accountancy package. Our only regret is that we didn’t join their team earlier.

Pippa Scott Scott's Commercial Services Limited
Sara Southey

Panthera puts the personal back in to accountancy!

Tory and her team have provided a friendly, approachable and helpful service from the start. They have delivered a quality service, above and beyond anything I could have expected. Panthera, with the help of the Xero package, have taken the stress, strain and confusion out of managing my company and personal accounts. I look forward to working with them for many years to come.

Sara Southey Bluestones Garden Design
Tracey Miller

Panthera are fantastic.

Panthera are fantastic. Always professional, going the extra mile for their clients and delivering superb service. I recommend them all the time to my clients.

Tracey Miller Bigger, Brighter, Bolder BBB

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