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Taxing Issues Affecting People Working from Home

By: Garry Pierrepont - Updated: 3 Oct 2014 | comments*Discuss
Work From Home Taxing Issues Vat Tax

Even if you work from home, it does not mean that you are exempt from paying taxes. Deemed the enemy of any small business, it is imperative that you keep up to date with your tax situation, as the penalties for underpayment or non payment on time are severe.

The first issue is corporation tax. Companies fall into three bands at present:

  • Smaller firms (with profits up to £300,000) where corporation tax is reduced by one per cent to 20 per cent
  • Large firms (more than £1.5 million profits) where corporation tax is reduced by one per cent each year until it reaches 23 per cent.
  • Medium firms who will pay somewhere in between.

Annual Investment Allowance will be reduced to £25,000 in April 2012. If you are working from home and use plant and machinery, this will affect you. Until this date, any size company is entitled to tax relief on plant and machinery of up to £100,000 per year. Now may be a good time to invest in a new IT and communications system as you can claim it back.

National Insurance payments have been halted for three years for new businesses outside the South East and Eastern regions. If you work from home and employ people to work for you, this means that you do not have to pay £5,000 of NI for your first ten employees, which will save you up to £50,000 per business.

If as an existing business, you have to write off bad debts due to other suppliers or traders going to the wall, then as long as you can stipulate who has not paid and how much they owe you, you may be able to get a percentage refund on your tax bill.

30 September is the date that as a small business, you should get in claims for Small Business Rate Relief (SBRR). You may get back dated compensation on a sliding scale and this will be based on the rateable value of your property.

Even of you are self employed, you may be able to get benefits although you will have to submit evidence of accounts for previous financial years. Eligible benefits will be judged on:

  • Income
  • Savings or shares you have
  • Who lives with you
  • Other benefits you may be receiving
  • Rooms that you use in the house
  • The area you live in.

If you are or intend to work from home, bear these five things in mind:

Register as a self employed person and remember it is your responsibility to pay your own tax and National Insurance contributions on what you earn.

Start paying Class 2 National Insurance contributions on what you earn, currently set at a flat rate of £2.40 a week (2009/10 tax year). If you earn less than £5,075, you don’t have to pay.

Register for VAT if you think you will turn over more than £81,000 in any one year.

Fill in a tax return every year, with details of your earnings and any other income.

Keep accurate records. If necessary, employ an accountant who will be able to tell you about the financial affairs that you have to sort out.

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