Business Expenses Guide

Business Expenses Guide Sole Trader

What is this about? Each year, your business must prepare a set of accounts for HM Revenue & Customs (HMRC). These accounts calculate the business profits on which you must pay income tax. Your profits for tax purposes comprise all your business income less any expenses which HMRC deem allowable. Brookson will prepare accounts for you in an appropriate format and will make sure that all allowable expenses of which we are aware are included in order to minimise your tax. This guide looks at which types of business expense are allowable and provides more information on how they will be treated for tax purposes. It also explains the Brookson expense review service and how to use it. This guide is divided into two sections. The first section recommends an approach to claiming expenses that will keep you working compliantly with HMRC rules then explains how the Brookson expense review service ensures you achieve compliant working with minimal hassle. The second section gives you details of the expenses that are allowable for claiming tax relief and those that are disallowable for tax relief purposes.

Index Section 1 Claiming expenses as a Sole Trader 1.1 Best practice when claiming tax relief on expenses 1.2 The Brookson expense review service Section 2 Guide to Expenses 2.1 Allowable expenses 2.2 Disallowable expenses 2.3 Capital expenses and fixed assets Appendix I Travel and Subsistence Appendix II Use of Vehicle Mileage Rates Appendix III Working from Home Important information It is important to stress that this document is designed to provide general guidance and should not be relied upon in isolation as either tax or financial advice. Before choosing a course of action it is always advisable to seek a professional opinion, so your unique personal and business circumstances can be considered. As always, if you have any queries or require any further information on the wide range of accountancy services and taxation advice we offer, please feel free to contact anyone our Customer Services Team on 0845 058 1200 or 01925 232 526 or email customerservices@brookson.co.uk.

1. Claiming Expenses as a Sole Trader 1.1 Best practice when claiming tax relief on expenses Claiming the right expenses for tax can be a complex process for Sole Traders. Establishing your income is relatively straightforward. However, accounting for your expenses is where you can optimise your tax position most effectively; it s also one of the key areas that require careful consideration when it comes to working compliantly. We recommend you work to the following best practice principles: 1. Only claim for genuine business expenses HMRC will only allow you to claim tax relief on expenses which are 'wholly and exclusively' for carrying on and earning the profits of your business. Therefore, any costs you want to set against income to reduce your taxable profits must be for the benefit of your business. In practice, the expense may have both a business and a personal element. As a basic rule of thumb, if an expense is partly for business and partly for personal use, you should only claim the proportion which relates to the business. 2. Understand the expense categories that are allowable and those that are disallowable Although the basic rule as set about above is simple, in practice, tax rules are often complex. Therefore, you should invest time from the outset in understanding what is allowable and what is disallowable. There are some expenses that you may consider for business but that HMRC states are simply not allowable as expense deductions, for example entertaining. Even when it is for customers or potential customers, it is not allowable. 3. Claim all your business expenses to minimise the income tax and Class 4 NICs liabilities you will have to pay on profits It may go without saying but it is important that you claim all allowable expenses you are entitled to in order to minimise the income tax and Class 4 NICs you will pay. You will save income tax at 40% or 20% of the allowable expense depending on whether or not your profit falls within the higher rate or basic rate income tax banding. In addition, you will save Class 4 NICs at 9% or 2% of the allowable expense depending on whether or not your profit falls below or above the higher rate limit for Class 4 NICs. 4. Pay business expenses from your business bank account In order to keep a clear separation between your business and personal affairs, Brookson recommend that you pay for all business expenses from your business bank account. This will help you more easily maintain control over your business finance and helps demonstrate to HMRC that you are properly separating your personal and business expenses

5. Keep accurate records to support expense claims Keep records of your expenses with supporting documentation such as invoices and receipts. You must by law keep business records for at least six years after the end of the tax year the records relate to. If you send your receipts to us with the expense record form, we will store them for you appropriately. 6. Invest in compliance By choosing Brookson as your accountant you have chosen to work compliantly. Sole Traders should recognise the powers of HMRC, the fact that they can raise an enquiry into your business and then you must be able to support the expense claims you have made. It all sounds pretty daunting, but it doesn t need to be. With Brookson s expense review service, you can be assured that you are establishing and maintaining your business compliantly. Our services are designed specifically to reduce your workload while ensuring you comply with the relevant HMRC rules. Useful Links http://www.hmrc.gov.uk/factsheet/record-keeping.pdf 1.2 The Brookson expense review service Working to the best practice points above can be difficult. That is why Brookson has invested so much time and energy developing a robust expense review procedure. We recommend that you take advantage of our expense review service regularly. This will make sure the information we are providing you with is as up to date and accurate as possible. In addition, it will substantially reduce the risk of you losing receipts or forgetting expenses. If you invest this time regularly we believe it will reduce your workload and save you time in the long run. Our procedure makes sure you keep on track and work to the best practice points as follows: 1. Only claim for genuine business expenses We ask you to only submit expenses that were incurred wholly and exclusively for the trade of your business. We will ask you to confirm you have done this prior to submission of your year-end self assessment return. This is proof to HMRC that you are considering business use only when recording expenses for the purposes of claiming tax relief. Our experts review all expense record forms you submit and will identify instances where you may be recording a non business expenses as a business expenses and we will then call you to discuss with you the expense prior to processing to make sure we have understood the situation fully. Where expenses apply partly to business and partly to non-business or personal use, we ask you to include on the expense record form the total expense amount, attach the supporting receipt and then separately record the amount that relates specifically to personal use.

For example, if you have a telephone bill for 100 and you use it only half of the time for business, you should record the total invoice amount on your expense record form with receipts attached and in the business expense columns of the expense record form you should put 50% personal or alternatively the monetary amount of 50. We can help you determine an appropriate split if you require. 2. Understand the expense categories that are allowable and those that are disallowable We have provided guidance below to help you understand the different types of expenses. If you need advice on what is an allowable expense at anytime, be it advice before you make a purchase or just advice as part of the day-to-day running of your business, please call our Customer Services Team who will answer your questions or arrange for you to speak to an expenses expert when appropriate, ensuring you get the right tax advice. 3. Pay business expenses from your business bank account It is important to note that any business expense should be paid out of your business bank account. If you choose on occasion to pay business expenses out of your personal bank account then it is important that you tick the box on the expense record form which identifies this so we can account for the expense appropriately in your accounts. Expenses which you pay for out of your personal bank account and which you do not submit on an expense form will not be visible to us and, therefore, will not be accounted for in your selfassessment return. 4. Keep accurate records to support expense claims We ask that you complete and submit expense record forms to us on a weekly or monthly basis. We will then review the expense items to determine their tax treatment and record them in your business books. These expense records support the expense claim entered on your year-end self assessment return. We will keep all your expense records including receipts safe should they ever be required in the event of HMRC enquiry. 5. Invest in compliance When you submit your expenses records and receipts to us, we will also file those receipts as required by HMRC to support your year-end self-assessment return and in the event of any subsequent enquiry. Should HMRC open an enquiry into your tax affairs, we will support you through that enquiry. If the enquiry relates to information held or work done by Brookson, there will normally be no further charge for this assistance.

2. Guide to Expenses 2.1 Allowable expenses With the exception of the costs relating to business employees, all other allowable business expenses should be recorded by completing the expense record form, attaching the relevant invoices or receipts and submitting it to us. The following are common examples of the costs allowable as business expenses using the categories of cost identified for Sole Traders by HMRC in the self employment element of the year-end tax return form. We cannot cover everything in this helpsheet, so if you wish to ask about something we have not covered here, please call us to discuss. Cost of goods bought for re-sale or goods used Cost of goods, such as materials or equipment to sell on to your customers alongside your services. Wages, salaries and other staff costs These costs might include salaries, wages, bonuses, pensions, other benefits for staff or employees; agency fees for recruiting employees or employer s NICs to name but a few. The costs of employing staff are allowable for tax purposes providing they are not significantly in excess of market rates. Staff expenses are not recorded by completing an expense record form. If you need more information on taking on employees please feel free to contact our Customer Services Team. Remember that there are other implications when taking on an employee around employment law and employer responsibilities. If you wish to discuss this further, please call our Customer Services Team who will put you in contact with the relevant expert. Subcontract labour costs Subcontract labour costs should be recorded by completing the expense record form and attaching an invoice as proof of supply. Again, be aware of employment status issues when taking on an unincorporated subcontractor. Brookson can also provide guidance in this area should you wish. Car, van and travel expenses Relevant costs under this category would include car and van insurance, repairs, servicing, fuel, parking, hire charges, vehicle license fees, motoring organisation membership, train, bus, air and taxi fares, hotel room costs and meals on overnight business trips.

You can deduct the cost of using your car for business purposes. There are two ways of working out how much you can deduct: a fixed rate for each mile travelled on business, using HMRC fixed mileage rates. There is more detailed information on this in Appendix I; or the actual expenses, worked out using detailed records of business and private mileage to apportion your recorded expenditure. There is more detailed information on this in Appendix II. Rent, rates, power and insurance costs Rent for business premises, business and water rates, light, heat, power, property insurance, security. The business proportion of home costs can be claimed if you use part of your home as an office. There is more detailed information on this in Appendix III. Please note that there are other considerations to take into account when claiming part of your home running costs as a business expense. These include the future capital gains tax position and potential business rates. Please read Appendix III fully to understand these. Repairs and renewals of property and equipment Repairs and maintenance of business premises and equipment; renewals of small tools and items of equipment. Telephone, fax, stationary and other office costs Allowable costs may include telephone calls made and faxes sent from home and mobile phone call costs on a mobile phone. If your business is based at your home address, you are allowed to claim as business expenses the cost of all business calls. You are also allowed to claim a percentage of the line rental based on the amount of business use. The same approach is taken when determining the allowable expenses associated with Broadband. Where there is mixed business and non business use, a reasonable percentage of business use should be used for expense purposes. Where a combined telephone and broadband package is being used, the level of apportioned business expenditure should be carefully considered and a flexible approach taken. If you have a dedicated business line or broadband connection, then all of the cost is an allowable business expense. This applies if you have separate business premises or dedicated lines at your residential address.

Advertising Costs under this heading could include advertising in newspapers, journal or directories, mailshots to potential customers, free samples given away to attract customers or the cost of setting up and maintaining a web site. Interest on bank and other loans This category would include the cost of interest on bank and other business loans and on any alternative forms of business finance such as invoice discounting or factoring or hire purchase agreements. Bank, credit card and other financial charges This might include bank, overdraft and credit card charges or arrangement fees for setting up business finance. Irrecoverable debts written off Amounts included in turnover but unpaid and written off because they will not be recovered are allowable for tax purposes. Accountancy, legal and other professional fees This heading will include the costs of accountants, solicitors, surveyors, architects and other professional fees incurred by your business. It would also include any insurance costs (other than property related insurance) your business incurs such as professional indemnity insurance premiums. Your Brookson fees and Kingsbridge Professional Services insurance costs are included in this category. You do not need to include Brookson fees on expense record forms as these are automatically recorded as a business expense in your accounting records. Please note that if the fee is in connection with purchasing a capital asset, the tax treatment will follow that of the asset required (see point 2.3 Capital expenses and fixed assets) Other allowable business expenses Training courses The cost of work-related training courses is an allowable expense. Subscriptions to Professional Societies You may claim the annual subscriptions paid to certain approved professional bodies or societies, where their activities are relevant to the type of work you undertake. A claim may also be made for certain statutory fees, where paying them is a pre-condition of being able to do the work. A list of approved institutions is published on the HM Revenue & Customs website. Tools and Equipment (Including Computer Equipment) The cost of the upkeep, repair and replacement of tools and equipment. (Note that items such as an office desk or chair or a portable workbench are classed as fixed assets and are discussed below). Protective Clothing The cost of the upkeep, repair and replacement of protective clothing and uniforms is allowable.

2.2 Disallowable expenses Costs that are not allowable in determining the taxable profits of your business essentially fall into three main categories: Non-business or personal costs; Costs specifically designated as disallowable by legislation; and Capital and fixed asset costs. Non-business or personal costs Costs that you incur for a non-business purpose, such as your own personal expenses or drawings, are disallowable for tax purpose. Examples of these might include the cost of goods or materials bought for personal use, payments made for non-business work or the cost of travel made not for business purpose. Proportionate business costs should be paid from your business bank account whilst costs that are wholly personal should not be paid from your business bank account. Costs specifically designated as disallowable by legislation There are a number of such items including: Certain travel and subsistence costs There are specific rules relating to what is and isn t allowable in relation to business travel and subsistence. You cannot claim the allowance for private journeys, such as travel from home to your office, or for journeys that serve both a business and a private purpose, and the cost of normal meals is disallowable. We provide further guidance on what is allowable from a travel and subsistence perspective in Appendix I below. Business entertainment and hospitality Meals or events involving more than one person that are held with third parties such as clients or customers are described as business entertainment. Business entertaining includes events such as dinner, theatre trips, sports events etc. Business entertaining costs are disallowable for tax purposes. Business bad debts If a business debts for invoiced work performed proves to be irrecoverable, this is an allowable expense providing it relates to a specific debt. However, costs relating to the write off of general amounts as bad debts are not allowable. Costs involved in breaking the law Fines imposed for breaking the law (for example speeding fines) are not allowable for tax purposes. The costs of settling tax disputes are similarly not allowable.

Payments to clubs, charities or political parties Charitable or political donations to registered charities i.e. RSPCA, Oxfam, NSPCC etc are not allowable as business expenses. If however, your business has made a contribution to a local concern and in your business has been given advertising space in a programme or a brochure relating to that concern, and it can be proven that your business has benefitted from that advertising then this contribution is allowable. Please call us to discuss any expenses in relation to local concerns. Capital and fixed asset costs Any items of equipment you have bought or leased for long-term use are called "fixed assets". These might include furniture, computer equipment or cars or vans necessary for the business. The cost of fixed assets cannot be deducted from your taxable profits in the same way that expenses can. Instead, certain tax allowances are available. The tax treatment of capital and fixed assets is explained in further detail in section 2.3. Additionally, capital payments, such as the repayment of loans or overdrafts or other capital finance, are not allowable in determining the taxable profits of your business.

2.3 Capital expenses and Fixed Assets Any items of equipment you have bought or leased for long-term use are called "fixed assets". These might include: Furniture; computer equipment; cars or vans necessary for the business; Professional fees incurred in connection with the purchase of such an asset. Fixed assets cannot be deducted from your taxable profits in the same way that expenses can. As a business you can claim tax allowances, called capital allowances, on certain fixed asset purchases. This means you can deduct a proportion of these costs from your taxable profits and reduce your tax bill. The amount of the allowance depends on what you re claiming for. In some cases, the rates are different in the year you make the purchase from those in subsequent years. You can claim capital allowances on the cost of vans and cars, machines, scaffolding, ladders, tools, equipment, furniture, computers, and similar items you use in your business. A change in legislation from the 6 th April 2008 introduced a new Annual Investment Allowance (AIA). An AIA claim can be made for the first 100,000 of a business capital expenditure up to 5 April 2012 but drops to 25,000 from 6 April 2012. Any capital expenditure over this allowance will be claimed at the reduced annual write down allowance of 20%.. We will make sure all appropriate capital allowances and AIAs are being claimed as part of your yearend self-assessment return. You notify us of any fixed assets you purchase by completing an expense record form. If the item you buy is used partly for business and partly for personal use, you must only record the proportionate cost. For example, if you buy a PC for 500 and you use it only half of the time for business, you should record the total invoice amount on your expense record form with receipts attached but in the personal expense columns you will put 50% business use or an amount of 250. We will record all your fixed assets within your fixed asset register.

Appendix I Travel and Subsistence As well as the information contained below, you should refer to the helpsheet Are my travel costs tax deductible in the Members Area of the Brookson website. Treatment of vehicle expenses for the purposes of self assessment As a Sole Trader, it may be possible to claim the costs of travel to and from your customer site. Consideration should be given when establishing whether the costs associated with journeys between home, your place of business and your customer sites are considered allowable. We recommend you familiarise yourself with our Are my travel costs tax deductible helpsheet which is available on the Members Area of the Brookson website, in addition to understanding the types of expenses that can be claimed as set out below. Road Travel Actual costs If you re a Sole Trader and you want to claim for vehicle expenses you must remember that if the vehicle is also used for private use, only the business proportion of the use counts as an allowable expense. For example, if your total vehicle expenses were 3,000 and one-third of your mileage was private - only two-thirds of the cost can be claimed against tax, 2,000. Mileage rates Sole Traders can use mileage rates to calculate their vehicle expenses. They can use this method as an alternative to keeping detailed records of actual expenditure. You may claim a cost per mile for allowable business journeys. You can claim 45p per mile for the first 10,000 miles in each tax year and 25p per mile thereafter. This method is intended to make things simpler for Sole Traders; you do not have to use it. Sole Traders who do not use it should deduct the actual amount they spend, in either case the journey must be made wholly and exclusively for business purposes. Thorough records of business use should be kept as HMRC do have ways of assessing the reasonableness of claims from a variety of sources, including for example service records. By completing your weekly expense record form you are meeting your record keeping obligations in relation to travel expenses and we keep this proof safe for you.

Road Travel - Use of Hire Car Where you would ordinarily use your personal car for business travel, and you hire a car instead of driving your own for a particular journey or if your own car is being serviced, then you cannot claim the cost of the hire car. Instead, for business miles travelled, you should continue to claim the authorised mileage rates. If you do not use your personal car for business and you hire a car in your own name for business journeys only, then the hire costs and fuel are an allowable expense. Please note, that if the car is used for personal use, a proportion of the hire costs will be disallowable. Hiring a car abroad for specific business purposes is also an allowable expense and therefore the hire costs and fuel should be claimed. Accommodation and subsistence The cost of food, drink and accommodation is not in general an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live. They are (either wholly or partly) normal costs of living incurred by all and not as a result of trading. Where such costs are disallowable they cannot be apportioned to allow extra costs incurred from the necessity of lunching away from home or the place of business. Occasional business journeys outside the normal pattern Extra costs may be incurred wholly for business purposes where occasional business journeys outside the normal pattern are made. Modest expenses incurred in these circumstances may be deducted from business profits. HMRC allow that where a business is by its nature itinerant i.e. you do not have a base but work at customer sites travelling from site to site to perform your work, then expenses may be claimed in relation to the costs associated with this travelling. For further information refer to our helpsheet Are my travel costs tax deductible? for more information. Overnight subsistence and accommodation expenses Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible. This does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place. The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether they are paid on the same bill, or meals and accommodation are paid on separate bills.

Appendix II Use of Vehicle Mileage Rates Who may use a mileage rate? As a Sole Trader you can compute your expenses using a fixed rate per business mile if the annual turnover of your business is less than the current VAT registration threshold of 73,000 (2011/2012 tax year) when you first use the vehicle. HMRC use the VAT registration threshold as a convenient limit, the actual value of this limit is regularly reviewed. You can only use the mileage rate basis if you apply it consistently from year to year. You can only change to or from an actual' basis when a vehicle is replaced. If the turnover of your business increases and exceeds the VAT registration threshold, then you should continue to use the mileage rate basis until the vehicle is replaced. If there is a change in the VAT threshold, then you should continue to use the same basis until the vehicle is replaced. What vehicles are covered by the scheme? You may use a mileage rate if you use a car, van, pick up, pedal cycle or a motorcycle for business purposes. Taxi drivers may also use a mileage rate if they use one of these vehicles as a taxi or for private hire. How much are the mileage rates? The mileage rates by vehicle type are as follows: Per business mile Motor cars or vans Each mile up to 10,000 business miles Each mile over 10,000 business miles 45p 25p Motor cycle All business mileage 24p Pedal cycle All business mileage 20p The number of people in the vehicle does not affect the rates.

Which journeys qualify for allowance? You can only claim the amount per mile basis for journeys that are wholly and exclusively for business purposes. You cannot claim the allowance for private journeys, such as travel from home to work, or for journeys that serve both a business and a private purpose. What costs are covered by the mileage rate? The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle. So if you use the mileage rate basis then you cannot claim any additional amount for these expenses. What costs are not covered by the mileage? The mileage rate does not cover costs that are specific to a particular journey such as tolls, congestion charges and parking fees. These will be allowable as a deduction where they are incurred solely for business purposes. Capital Allowances If you use the mileage rate basis then you cannot claim capital allowances in addition. This is because the payment rates already contain an element to allow for depreciation. Ownership It is not necessary for a person who claims the mileage rate to be the legal owner of the vehicle. All that is necessary is that if you are claiming the expense then you are paying the costs of running and maintaining the vehicle. Vehicle Financing Since the mileage rates already contain an element reflecting depreciation, no further deduction can be made for the capital element of a hire purchase or finance lease arrangement. You can claim the business proportion of the interest on a loan used to purchase the vehicle or the finance element of a hire purchase or finance lease.

Appendix III Working from Home Do I work from home? Ask yourself, do you actually use a home office? If you work away and are claiming accommodation and travel for long periods at a time, it could raise questions as to whether your home office is really used for work. It s not enough to spend five minutes a week updating your records or completing your expenses claims. If you can t genuinely answer yes, it may be difficult to justify a home office claim. In addition, a dedicated room or work area is required and it should be furnished for business purposes. Using the dining table in the kitchen, for example, is not sufficient. You should only claim if you genuinely do use a proportion of your home solely for running your business. How do I calculate home expenses? In many cases there is more than one method of arriving at a reasonable figure. Some methods may be more appropriate for a particular type of expense. The factors to be taken into account when apportioning an expense include: Area: what proportion in terms of area of the home is used for business purposes? Usage: how much is consumed? This is appropriate where there is a metered or measurable supply such as electricity, gas or water. Time: how long is it used for business purposes, as compared to any other use? The method of apportioning an expense depends on the relative importance of each of these factors. What can I claim? Allowable expenses for home working broadly fall into 2 categories, Fixed Costs and Running Costs. Fixed Costs These are costs which relate to the whole of the house, such as council tax, mortgage interest, rent, insurance and general repairs. They are costs that would be paid regardless of any business use. Provided you have confirmed that you do work from home and have a dedicated room or work area, a proportion of these costs is allowable based on the area (as a percentage of the whole house) and duration it is used.

Council Tax The council tax is a tax on property. HMRC state that in principle such an expense may be allowable in those instances where other property based expenses are deductible. As HMRC make no definitive statements around the deduction of a proportion of Council Tax expenses, we would suggest that you contact us to receive specialist advice on your particular circumstances. Mortgage interest If part of your home is used solely for business purposes then you can claim an appropriate portion of the mortgage interest as an allowable expense. However, repayments of capital are not allowable. Rent If you rent your home, part of the rent is an allowable expense provided part of the home again is used solely for business purposes. The allowable expense is the proportion of the rent paid to the landlord that is property attributable to the part of the home being used solely for business purposes. You cannot charge a separate rent to your own business. Insurance If the business use is covered by a separate policy, then all of this cost is allowed in full, with no part of the household policy being allowed. Otherwise, an appropriate part of the premium can be allowed. Repairs and maintenance A proportion of the cost of general household repairs and maintenance is allowable in line with the proportion that the house is used solely for the business. Examples include painting of the exterior or repairs to guttering. Repairs or redecoration that relate solely to a room not used for business use are not allowable. Similarly, redecorating a room used solely for business use is allowable.

Running Costs These costs relate to expenses where the total bill may vary with the amount of business use, they include cleaning, heat and lighting and power. Cleaning If a cleaner is employed to clean the house, including the office, a proportion of the expense is allowable. However, this would not be allowable if the cleaner cleaned the rest of the house but did not clean the area dedicated to business use. Heat, Light and power A proportion of the heating, lighting and power costs of a room used at times solely for business purposes is allowable. You should ensure that the proportion you claim reflects the facts of usage. HMRC will accept any reasonable estimate where usage is minor. If your usage is higher, consideration will be made of your type of business, e.g., a commercial photographer with specialist lighting equipment will have a higher power usage than a business owner using an office to write up records. Metered Water Charges For typical home office use, HMRC will not allow any proportion of water use as a business expense.

Other Considerations There are some associated issues with using your home for business purposes: Business Rates If you make it clear that part of your home is dedicated for business use, it may attract the attention of the local authority Valuation Office who may look to apply business rates. If that space is for "mixed use", i.e. personal as well as business use, then business rates should not be applied. Capital Gains Tax Usually your home is exempt from capital gains tax when you sell it. However, if you sell your house having claimed that a proportion of it has been used for business purposes, HMRC may argue that a proportion of any gain should be subject to capital gains tax. Again, this shouldn't apply if the room you use has mixed use, but could apply if you've created a dedicated office, above your garage, for example. Insurance Arranging business insurance for the home contents used for the business is further evidence of a genuine home office. It is also useful in the event of an insurance claim for your business equipment or furniture. Insurance and Mortgage You should consider your insurance policies, mortgage and/or tenancy agreements, as often you will be asked to declare that your home is used solely for residential purposes. However, if you're running a small home office, and take out business insurance for your business-related items, it should not be an issue.