Imagine you’re James Bond…
You’ve dispatched the Bad Guys, and now you’re setting up shop on a tropical island, offering spy services. Judi Dench has promised you some referrals, you’ve got a brand new office in a corner of your grass hut, and of course, you’re a sole trader. No limited kind of company for you!
And being the smooth operator you are, you want to know if you can claim some of your working from home costs, as HMRC reaches even to tropical paradises.
So settle down, sip your coconut, and read on.
1. Gas & electricity
You can claim a proportion of the cost of gas & electricity back from your tax bill (it’s called being tax-deductible or an allowable expense). You burn palm tree leaves instead, but the principle is the same. There is even an official formula HMRC require to work out the right proportion of business to personal expenditure. It’s based on the size of your grass hut, whether you have a designated office, and how many hours from home you work. For example, hours spent chasing villains is not working from home, so you couldn’t claim for those. Email me for the formula or have a look on HMRC’s website.
Water needs collecting by your Bond girl, so it’s like being on a water meter. That means you can claim a proportion of your water costs off your tax bill according to your business/personal calculation. If you’d built your grass hut right next to the stream so the amount you used made no difference, that’d be like water rates. Bills based on water rates can’t have a proportion claimed back as the amount you use makes no difference to the amount charged.
3. Rent/council tax
Council tax? Rent? You escape all of that on your tropical island. It’s just as well, as it’s not tax- deductible anyway. There are circumstances where you can deduct a proportion, but that means it can get complicated (and possibly a tax bill) if you sell your house/hut/flat/mansion.
4. Landline phone
Haha! I bet you didn’t know the island monkeys run a telephone service! Enterprising lot they are. Unless you’ve organised a business contract, the cost isn’t an allowable expense as HMRC argue that you have the phone for personal reasons. You can claim the cost of business calls though. It can be easier to use a service like Skype or a mobile for all outgoing business calls, so it’s all tax- deductible. Adding up all those calls on a landline bill can take up valuable spying time!
Ah, the glories of the internet, making possible a spy service from a tropical paradise. It’s the really tricky one though, for working out if it’s an allowable expense. Do you deliver paid-for client services through the internet, e.g. streaming? If so, you can argue that the full cost of your internet is business because you need it to deliver your service. I say argue, as a tax inspector may disagree. For most of us, the internet is used for marketing (websites, social media) and communications, and so ‘ not as important’ in HMRC’s view. They’d argue that – like with the landline – you have it for personal reasons first and there is no extra cost because it is also used for business. This may change in the future as there are few businesses that can operate without a website in reality. One option is to have a business internet contract or use mobile wi-fi for business.
6. Contents insurance
Spy kit is expensive! Going for a separate insurance policy for your business assets is a good idea if you have more than just a laptop. Policy Bee are a micro business who do this (not an affiliate link, I just think they’re ace). That’s tax-deductible.
7. Commuting costs
You don’t have any! Woohoo! The costs don’t come off your tax bill, so that’s a lot of expensive helicopter flights saved.
8. Office furniture and equipment
These are usually capital items (assets: anything that will last more than a few years) and not expenses. They need to go in a different place on your tax return, but if allowable, they are tax-deductible as long as you don’t go over the annual limit. The limit changes so check every year. The cost of your palm tree desk and chair and your firefly lamp are allowed capital items, a new carpet isn’t.
You’re allowed the cost of repairs: for example, a new desk leg when the termites get in or the monkeys crash through the wall. You won’t be allowed the cost to repair the actual wall, as that’s considered part of your home.
Yes, they even have cake on tropical islands. It wouldn’t be paradise otherwise would it? Tuxedo cake is especially suitable for stylish spying. Unfortunately it’s not tax deductible, as it’s food/ entertainment. Don’t let that stop you though.
(crackle over the radio) “What’s that you say?”
“You’d like to arrange a video call to discuss my services? Of course. When are you available? I’m just chasing up Judi who hasn’t sent her tax paperwork in, and then I’ll be right with you. Coconut brownie while you’re waiting?”
Note – this post relates to sole traders working from home. The situation is different for employees and directors. There is also a flat rate you can claim, whatever your situation, which is a lot simpler than keeping all the records and doing the calculations. Email me for details or have a look on HMRC’s website.
Today’s Micro Action
Are you a sole trader? If so check your records and see if you need to change anything. And if you have any questions, please leave them in the comments.