Allowable expenses for home based internet business?

I’m afraid it is a "it depends" type answer.

You can claim an element of "home office" expenses, this is computed on proportion of the house you use for your business. This may included elements of rent, heat and light, and your council tax bill. Similarly you can claim the costs of your PC if this is exclusively used for business purposes, although this will be normally treated as a "fixed asset" eligible for something called capital allowances which spreads the cost over several years as opposed to being a full deduction of the cost in the first year.

It really depends on your circumstances and the size of your businesses what is going to be "reasonable" and what is not. The best thing to do right now is keep a good record of all your expenses, and when you have your tax return put together you can discuss with your accountant what is allowable and what is disallowable.

Hope that helps,

Regards,

------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

Thanks James. I was hoping there would be some definitive inland revenue ruling around but I guess not. The business is small (1 item of cost and 1 item of income per month) and income from it is likely to be in the region of  £15k p.a. If I'm working from my sitting room in a 1 bed apartment (so 4 rooms total) with total home related bills of c£600 per month, would it be unreasonable in your opinion to claim say, a quarter of this for business purposes? Too much?

On the subject of a pc at say £400, would the inland revenue really require this to be spread over a period of years for such a small amount?

Brenda,

you needn’t be too concerned about CGT so long as (a ) you don’t use any part of your home exclusively for business (Eg put a sofa bed in your home office so you also use it as a guest room) (b) you don’t try and claim a mortgage interest deduction as part of your home office expenses on your tax return. Even if a portion of your home is exclusive, there may still not be much if any CGT due once all the relevant relief’s have been computed.

Tax and other issues for the for small business is probably quite different from what you are used to in your day job, so don’t feel you ought to know everything about it, I must admit to not being up to date with things such as transfer pricing for multinationals which I used to deal with some years ago.

NW - in your example it would depend if you where home all the time, and what costs where included in your bills. It wouldn’t be ok for example to claim your standing charge on your landline, as this would have been incurred whether you had a business or not. It up to you and your advisors as to what is "reasonable" in your circumstances. The PC is a capital item, as the HMCE have no concept of "materiality" they may well argue for the correct capital method, although in practice many inspectors wouldn’t be too concerned.

Regards,

------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT