Taxed by rules on working at home

AE writes: I have started a part-time consultancy business from home. I thought I could claim some of my house rent as an expense against the business for office space. But the Inland Revenue has told me this is not so and all I can claim for is "heat and light". Is this correct, and if so, are there other expenses in relation to home working that can be claimed?

Answer

A claim for "use of home as office" expenses against a self-employed taxpayer´s income is a grey area. A strict interpretation of the law normally bars the deduction of "dual purpose" spending as the law caters only for expenses incurred "wholly and exclusively" for a business. But, in practice, the Revenue will generally allow a "use of home as office" deduction against freelance income. This would include the relevant proportion of light and heat and other items, including contents insurance, the maintenance and repair of that part of the home used as an office and the rent relating to the room used as an office. Where the office is in an owner-occupied rather than a rented home, care needs to be taken to ensure the principal private residence capital-gains tax exemption is not lost. Professional advice may be needed on this point. There may be other items such as computer, telephone, fax and motor expenses that can be claimed. In some instances, you may pay your spouse for secretarial or book-keeping duties and these costs may also be claimed. But it is important that the cash paid to the spouse is at market value and that payments are actually made. With the new self-assessment regime in place, it is vital that records are kept to substantiate any claims for expenses. If you use your home as an office, you must establish the appropriate proportion of domestic overheads to be claimed. You should ensure you retain a record of your methodology as well as invoices in case the inspector challenges the amount. You should also tell your insurer that you are using your home as an office, as failure to do so could jeopardise any claim under the policy. At a time when the Revenue is supposedly making itself more user-friendly, it is sad to see it has advised a taxpayer that it is not possible to make a-use-of-home-as-office claim where it is long-standing practice to accept reasonable claims for such deductions.