Franchise Finance: Claiming relief for using your home as an office
Carl Reader, Dennis & Turnbull Ltd
Many franchisees operate their business from home, however do not fully utilise the tax benefits available to them. This is often due to confusion amongst professional advisers, and indeed franchisees, as to what they are entitled to.
HM Revenue & Customs have attempted to clarify the claims which can be made, however there is still some level of judgement required which can lead to uncertainty in the business owners mind.
Whilst I do not propose to provide a “magic formula” to calculate a suitable use of home charge, I would suggest that if you are not already claiming a percentage of your household bills, that you consult your professional adviser to ensure that you are claiming the maximum tax relief possible. There is some belief that by claiming mortgage interest, you could incur a significant Capital Gains Tax upon sale of your property. This is only correct if the area used for business is used exclusively for business, and would not apply if the area is used for 90% business purposes.
Historically, some business owners have claimed a nominal charge of £2.00 per week (recently increased to £3 per week by HM Revenue & Customs), to cover the costs incurred by operating your franchise from home, however this is clearly insufficient to cover the true costs of operating a business from home and the tax relief resulting from this is minimal. It is possible, based on the guidance from HM Revenue & Customs, to consider the total costs of operating from home, proportionally reduced to reflect the amount of rooms used for the business, and if it is higher than a nominal charge you should ensure that you take professional advice so that you are claiming sufficient tax relief.
You do need to be aware of the potential issues regarding Capital Gains Tax, business rates and insurance, and as such professional advice is essential.
Carl Reader is the head of franchising at franchise accountants Dennis & Turnbull, a leading firm of accountants in the franchise industry.
The above information is provided as general advice and no liability is accepted by the author, Dennis & Turnbull or Select Your Franchise in respect of individuals or businesses acting on the above. Independent advice should be sought in all circumstances.
Tags: carl reader, franchise, Franchise Finance, home based franchise, taxation
