Home business taxation advice

The beauty of running a home business is that your overheads are significantly reduced. And you need to be aware of your tax situation in order to take advantage of any available tax relief in order to keep costs as low as possible.

You can claim tax relief on your domestic bills for the areas of the house that are dedicated to business use. Your accountant will be able to help you calculate what percentage of your domestic electricity and/or gas consumption you can claim for. This is based on the amount of space your home business occupies within your house or flat.

You will also be able to claim tax relief on your home business supplies, including any computer equipment, stationery, printer inks etc. And if your home business is VAT registered you may be able to claim back VAT on the purchases you make for your business.

If your home business occupies a whole room or rooms you may have to pay business tax rates rather than your usual council tax. The Valuation Office Agency publishes a fact sheet giving advice about running a home business and the tax implications. Similarly, if you have a room dedicated to your home business, you may also be liable for Capital Gains Tax should you sell your property.

If you run your home business as a sole trader, partnership or limited company, you can improve the amount of tax relief you receive by paying rent for partial use of your premises. The rental income received will be subject to income tax and you will have to declare it on your tax return, but this can be offset against expenses for business use and there may be little or no tax to pay as a result. Remember to ensure that the rental charge is in line with commercial rates – get an independent valuation and review annually.