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Clarity begins at home

A recent tribunal case offers encouragement for people who use their home as a business base


There are very few people in financial services who I talk to (and at TC, we talk to a lot) who do not spend at least some of their time working from home. Some of these are self-employed and,probably more are employed. It is likely that a high proportion of you reading this article will spend at least some of your time working from home. At the very least, you may visit a client direct from home even if your main place of work is a separate office.

The phenomenon of homeworking has evolved in line with the increasing use and normality of connectivity and, especially currently, the drive to take costs out of a business.

How many of you have, in the last two weeks, been involved in at least one conference call where, say, two years ago there would have been a face-to-face meeting?

Fixed location costs and everything associated with them can be significant, so the saving to the bottom line can be impressive, especially if your business is in a sector where profit growth is unlikely to come from a surging increase in sales through traditional distributors.

The sometimes superficial benefit of the immediate saving through staff reduction needs to be weighed against the possible long-term deferment to core capacity.

There is also a balance of the financial aspects of a decision against other non-financial factors, including the importance of face-to-face communication, knowledge sharing and general interaction – all of which can help to make a business work but none of which can have a direct financial value attributed to it.

Then there is the other, seemingly mundane but collectively important, factors such as tax that need to be taken into account by the business and the worker when some or all of the duties are carried out at home.

One of the most frequently discussed can you/can’t you issues (apart from the frequently held view that entertainment expenses are fully tax-deductible) is related to travel from the work to home, which, given the increasing cost of travel on public transport or by car, is hardly surprising.

There is a reasonable body of legislation on the subject and, there is HM Revenue & Customs’ employment income manual that can be referred to for additional, largely very helpful, guidance. There is also a body of case law that has built up over a reasonably long period.

A recent case heard before the first-tier tribunal might provide some comfort to some of the growing numbers who contract with clients to deliver services, use their home as a base and travel to various sites to carry out the work.

In the case reported, the taxpayer, a self-employed electrician named Paul Mellor, worked on various sites. He travelled to the sites by car and claimed motor expenses for the journeys. Citing the decision in Horton v Young 47 TC 60, he claimed that his home was also his work base, so the travel to and from the sites was wholly and exclusively for the purpose of his trade. He said he had no other office, all his business records were kept in his home, all correspondence was sent to his home address and he kept some small tools and equipment there when not using them.

HMRC disallowed his claim, saying that although the taxpayer might do some administrative work at home, it was not where he carried out his trade as an electrician. His travelling costs were not allowable as they were not wholly and exclusively for the purposes of his business.

The first-tier tribunal said that a sub-contractor, such as Mr Mellor, had to have a base for his business. Arranging work was integral to being a sub-contractor and the administration in dealing with that had to form part of his trading activity. He carried out the administrative part of his trade from his home, therefore his business base was his home.

The taxpayer’s appeal was allowed, subject to the figures being agreed.

It is essential to remember that, when it comes to claiming deductible travel expenses, each case will depend on its own facts and the test for deductibility for an employee is different from that for a self-employed person. That said, however, it would seem that because securing, arranging and planning work are all integral to the process of contracting for work, if the claim is supported by the facts, a contractor’s home can be classified as a business base.

This, in turn, will mean that (possibly not unsubstantial) travel costs incurred in getting to the site where the work is carried out can qualify as a deductible expense.

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