Wednesday, 25 April 2007

Tax Tips; Working from Home/ VAT Cash Accounting

Self-employed and working from home

HMRC have recently revised their guidelines for self-employed persons working from home and claiming for the cost of using a home office.
Prior to these new guidelines, which effectively apply from the 6 April 2005, the Revenue could challenge claims for the business use of home facilities unless the area allocated to business use was used exclusively for business purposes.

They have now decided that:

"If an expense is incurred for more than one purpose, we will not prohibit a deduction for any identifiable proportion of the expense which is incurred wholly or exclusively for the purposes of the trade."

So lets say that you had a spare bedroom set up as an office, and part of the time it was used as a business facility and at other times as a place where your children did their homework, then you would be allowed to claim for the identifiable costs when it was being used as a business office.

But beware - if the room has two desks one of which is used for business, and at the same time the other is used for non-business purposes, then tax relief could be denied! Also they have decided that an estimated £2 per week is a reasonable cost for the business use of home facilities - this is now in line with the £2 a week that can be claimed by employees working at home.

VAT Cash Accounting

After 1st April 2007 HMRC have announced major changes to the cash accounting scheme. As a result many more businesses may be eligible to join the scheme and benefit from cash flow savings!
The changes set much more generous turnover limits for registration:
The annual turnover limit below which businesses can start to use the scheme will increase from £660,000 to £1.35 million.

The annual turnover limit above which businesses must leave the scheme will increase from £825,000 to £1.6 million.

Ordinarily your VAT liability is calculated as the difference between the VAT you have added to your sales invoices, and the VAT included in the purchase invoices you receive. A cash flow problem can arise if the VAT you have added to sales invoices has not been paid when the due date for payment of the VAT is reached.

Deciding to switch to cash accounting allows you to pay over VAT when you receive payment from your customer - likewise you can only claim back VAT when you pay your supplier.
Businesses that have significantly more money owed by customers than they owe to suppliers would potentially see a cash flow advantage by changing to the cash accounting scheme. The initial calculations can be complicated If you want to review your circumstances and see if you could benefit you should speak to your accountant or your Revenue & Customs Office.

DISCLAIMER - PLEASE NOTE: The ideas and information shared with you in this post are intended to inform rather than advise. Taxpayers circumstances do vary it is important that consult your accountant or tax adviser before implementation. If you do or do not take action as a result of reading this information, before taking professional advice we will accept no responsibility for any financial loss incurred.

Dynamic Business Strategies Ltd
The Counting House
14 Walford Place
Registered in England. Reg No.5418835
Tel: 07917 446068


1 comment:

camilynn said...

Good one on "Tax Tips; Working from Home/ VAT Cash Accounting". And I would like to say that I'm living my dream of owning my own business and working from home earning equally or more than the regular jobs by using

William- Working Moms make more

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