What home expenses can a sole trader deduct against their income tax liability?
With the benefits of modern technology many sole traders now run their business from home. This raises many questions about the tax rules for claiming a tax allowance for expenses such as light and heat, mortgage interest etc. Leaving aside the question of tax claims for your house against the business all other normal business expenses are of course tax deductible against business profits.
We will now deal with the usual questions that arise in relation to working from home:
How do I claim for Light & Heat Costs when running my business from home?
Separate billing is not required provided a reasonable amount only is claimed as a business expense having regard to the nature of the business.
Can I claim for my home phone against my self-employed income?
Yes. However we recommend that you obtain separate lines for business use and then the full cost of same can be claimed in the usual way.
Can I claim the cost of my Home Office Furniture & Equipment for tax purposes against my additional self employed income?
Yes, subject to the normal rules i.e. the cost is allowed over a period of eight years.
Can I claim my mortgage interest as a tax expense of the seff-employed business?
Yes but only in proportion to the amount of space used. If you do claim an amount of your mortgage interest as a business expense you cannot claim the normal mortgage interest tax relief for that amount of interest. See Question 6 below regarding Capital Gains Tax treatment.
Can I charge a rent for the use of my house against tax on my self-employed income?
If the house is owned in joint names and you carry on business in your sole name then the answer is yes, but it must be a reasonable rent having regard to your circumstances. Remember that the rent received is subject to taxation under rental income rules. Generally speaking a rent is not charged for use of one’s house.
If I run my business from home and I sell the house will I pay capital gains tax on the sale?
You may have to pay capital tax thereon in proportion to the amount of the property used for business purposes. This is an important matter that needs to be kept in mind when running your business from home.
The benefit of either claiming mortgage interest relief as a business tax deduction (as distinct from the normal tax relief for mortgage interest) or of charging a rent for the space used needs to be weighed up against the Capital Gains Tax exemption for selling your house.
If I benefited from the owneroccupiers stamp duty relief when buying the house is there a problem in running my business from home?
Assuming the business use is of a minor nature and you do not charge a rent for the use of same then in practice there should be no difficulty.