Is it a base for the business?
This has long been a problematic issue in a number of situations where it may be difficult to properly establish that the business base of a self-employed person is his home. The issue is not just relating to the running costs of the business base, but of often greater significance is the need to establish the home as the business base if a claim for travel costs is to be valid in respect of travel to and from the home and where the individual is visiting in the course of the business.
A recent case was determined for the taxpayer and may well provide the chance to make claims for motor expenses in circumstances that previously were doubtful. This is not simply because of the taxpayer’s victory but more due to the thinking behind the decision.
Subject to any HMRC appeal the position can now be summarised below as the basis for possible claims for the self employed who use their home as the business base but travel to actually do the core work:
1. A self employed electrician, acting mainly for contractors rather than for domestic clients travelled from home to client sites. He claimed tax relief on motor costs to/from home and each site, on the grounds that his home was his business base.
2. HMRC claimed that although some work connected with his business may be done at home, that was not the location where he exercised his trade. They instead argued that that his trade did not start until he reached the client’s premises where he was to undertake the work.
3. The use of the home for the business involved the following:
• Preparing quotes and Preparatory work (although sometimes a site visit was also made before the contract started)
• Preparing the contract
• Telephone queries
• Keeping his tools and equipment
• Location of his business records
• Address used for correspondence and for PII cover
4. HMRC argued that the taxpayer was not a team leader and did not hold any meetings at his home. Basically, the use made of his home did not make it an office.
5. The tribunal concluded that a sub-contractor such as the taxpayer must have a base for his business. His work on plans and quotes at home must be a part of his trading activity which did not therefore cease when he arrived at home to deal with these. Accordingly his base for the business was his home.
What running costs of the home can be claimed?
If it can be established that the business base is the home there is plenty of scope for claiming tax relief on the running costs by reference to the usual requirement that the expense must be wholly and exclusively incurred for the purposes of the business.
Indeed there is even more scope for being able to apportion the use and cost of a home on a time basis and to allow the expenses of the room during the hours in which it is used exclusively for business purposes.
Also there can be a valid claim for apportioned mortgage interest; telecommunications (including the line rental); insurance (including a household policy); repairs and maintenance.