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However, claiming home working expenses is a bit of a grey area and one that fewer contractors choose to take advantage of, perhaps because HMRC allow a flat rate claim of only £3 per week for incidental home expenses! But if taking the trouble to claim £3 doesn’t float your boat, it is certainly possible to claim more for home expenses – and you don’t need to operate a full-blown home office to do so. Here’s the low down on how to squeeze the maximum tax savings from your home working and, more importantly, how you can apportion between business and private home expenses.

1. Define Your Home Working Activity

For the purposes of this activity we’ve pigeonholed all home workers into three convenient species: the accidental home worker, the kitchen table home worker and the dedicated home worker.

• The accidental home worker has no distinct office and doesn’t consider himself to be a home worker, but he frequently throws the kids off the PC to tidy up a few loose ends or organise his expense claims for the week. The accidental home worker is probably not even claiming his three quid’s worth of no questions asked home expenses, let alone anything greater.
• The kitchen table home worker often begins life as a member of the accidental species and gradually evolves until he is working from home on a more regular basis. The accidental home worker often clears some dedicated space in one room to use as a work area, but it’s probably not exclusively used for business. For example, it may store domestic and private belongings, or double up as the kitchen, bedroom or garage.
• The dedicated home worker regularly (or always) works from home in a more clearly defined ‘office’: whether this is a converted garage, a free standing garden studio or a spare bedroom doesn’t matter, the important bit is that this room is primarily used as a work space.

So here’s the important part: whether you are a member of the above groups or any other sub-species, it is possible to save money by claiming for home working expenses, as long as you follow the rules. In order to do this to need to figure out exactly what you can claim, and how you measure it:

2. Understand what you can claim

If you use part of your home for business, you can deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation. However, you can only deduct a figure that relates to business usage, which must be clearly separated from private usage. Home expenses broadly fall into two categories: fixed costs and running costs.

• Fixed costs relate to the whole house and have to be paid even if there is no business use. These include costs such as, Council Tax, mortgage interest, insurance, general repairs and rent. If part of the home is set aside solely for business use for a specific period then a part of these costs is allowable, these will need to be apportioned by area and time (see next section for details).
• Running costs relate to expenses where the bill may vary with the amount of business use. They include telephone line rental, broadband, cleaning, heat and light. HMRC officers are now instructed to “accept a claim based on any reasonable basis” provided that apportionment is based on usage.

3. Measuring Your Usage

In their perfect world, HMRC might ask you to separate private home expenses from your business ones by measuring out your electricity usage by the watt and apportion it accordingly. But in the real world they realise that people may find this slightly impractical, so they have produced guidelines to dictate how to apportion home expenses correctly.

• 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?

Percentage of time in use

As well as working out the percentage of your house that you’ve dedicated to business, you may also need to time apportion some expenses. For example, if a room is used for business four hours per day, you can claim 33% of the utility cost relating to that room because it is effectively used for business 33% of the day.

Or, to quote HMRC directly: “… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure.”

If in doubt…

Hopefully all this makes it crystal clear how, and what, to claim for business expenses, but if you’re in any doubt the best advice is, of course, to have a chat with your accountant, who will be familiar with the many quirks, case studies and disputes that have arisen in the past relating to home expenses.

Our accountants (although you really don’t need to be an accountant to perform this kind of maths) have calculated that ClearSky customers will now be paying an additional £792 for their accounting, but ClearSky themselves have remained fairly reticent in providing an explanation of the changes, except to indicate that they are a result of a three year price freeze ending last month.

But as one disgruntled (and on the ball) customer has pointed out on the contractoruk.com forum, had this freeze not been in place ClearSky would have needed to hike their prices by 25% each year to achieve the same end result – hardly a standard rate increase for a clear thinking business.

If your bank balance has been upset by the ClearSky Accounting price rise but you haven’t yet voted with your feet, now is a great time to consider switching to inniAccounts. Here’s why:

• You’ll save money. At £64.95 per month, our accountancy service can save you over £600 per year compared to the new ClearSky subscription fees.
• You’ll get more. As an inniAccounts customer not only will you receive a full accounting service, you’ll also get access to our online accounting software, which removes the burden of day-to-day tasks like expense tracking, invoicing and payroll. Explore inniAccounts to find out exactly what our online service can do for you.
• Switching is easy. If you decide to switch to inniAccounts there’ll be no hassle on your part at all, and that’s a promise. We’ll contact ClearSky on your behalf and arrange for your accounts to be sent over, plus we’ll set up your online service – and we don’t charge a fee for joining.

In a nutshell, we’re a ClearSky alternative with added value.

If you have any questions about our service or you’d like to find out more about switching to inniAccounts e-mail clearsky-switch@inniaccounts.co.uk or give us a call on 08000 337 827.

If you’re already with inniAccounts but you have colleagues looking for a ClearSky alternative, why not take advantage of our referral scheme and save them (as well as yourself) even more money every month?

IR35 abolishment closer than ever

In a post-budget interview with The Telegraph, small business minister Mark Prisk indicated the government’s intention to “undertake a comprehensive review of small business taxation in a way that makes the need for the current IR35 legislation redundant.”  An overhaul of taxation for small businesses is long overdue and Prisk’s review is to be announced this summer.  With the government’s commitment to stimulating business in the UK we expect this to be broadly positive.

VAT rate increase

The standard rate of VAT will increase from 17.5% to 20% from 4 January 2011, as will the rates applied under the flat rate VAT scheme.  The impact on most contractors will be negligible.

Corporation tax falls

Corporation tax for companies with less than £300,000 profit will be cut from 21% to 20% from 1 April 2011 – it was previously expected to increase to 22%.  For contractors this means that for every £1000 profit an additional £10 will be available for dividend payments (as these are paid from post-tax profits).  There’s also good news for your clients too – corporation tax for large companies will reduce from 28% to 24% over the next four years.

Income tax allowance increase

The personal allowance for those under 65 will rise by £1,000 to £7,475 for 2011/12. However, this generous increase in tax free income will be limited to those who pay income tax at 20%, as the threshold at which 40% tax starts will be reduced to take into account the increased allowance.  The full details of income tax changes will be confirmed in the Autumn Budget.

National Insurance impact still uncertain

A rise in NI has already been announced, however the thresholds for 2011/12 are not due until October, which limits our ability to forecast the impact of the changes.  The government have also partly delivered their pledge to offer a NI holiday to new businesses: from September 2010 new companies in the North of the UK will be exempt from paying employer’s NICs for the first 12 months, for up to 10 employees.  This change excludes IR35 businesses – full details are expected to be announced shortly.

Pension contributions limited

In addition to changes to the state pension, tax relief for pension contributions is expected to be limited to around £35,000 per year per person from April 2011. This cap will replace the complex tapering of tax relief that was due to apply to individuals with total income of £180,000 or more.  If you’re planning on making pension contributions over £35,000 please contact us for further advice.

Capital Gains Tax increases below forecast

As expected Capital Gains Tax has increased: from 18% to 28% for higher rate tax payers – the hike isn’t as large as forecast, however the change is immediate. The annual exemption remains at £10,100 for individuals and £5,050 for most trusts.

We’ll update you over the next few months as the details of these changes are announced.  As always, if you need any tax planning assistance or advice please don’t hesitate to get in touch.

In April 2010 it became mandatory to complete PAYE, VAT and corporation tax returns electronically, and the regulations and penalties relating to late payments have also been tightened. Luckily the inniAccounts system automatically sends you a reminder whenever your tax payments are on the horizon, which should help you avoid these new penalties, but here’s some additional clarification to keep you in the loop with exactly what has changed:

PAYE

Since April 2010, all businesses need to file their end of year forms (P14 and P35) online, and in April 2011 this will be extended to include selected in-year forms (P45, P46, and P46). An increased penalty system for late tax payments has also been enforced, based on a totting-up procedure that takes into account the number of defaults you make during one tax year:

• Up to three defaults – 1% of total amount of those defaults
• Four, five or six defaults – 2% of the total
• Seven to nine defaults – 3% of the total
• Ten or more defaults – 4% of the total
• If any tax is unpaid six months after the penalty date, an additional 5% will be levied
• A further 5% can be levied after 12 months.

VAT

For businesses whose turnover is more than £100,000 VAT returns also now need to be filed electronically, and if you register for VAT on or after 1^st April 2010 you’ll need to file online regardless of your turnover.

Corporation Tax

From 31^st March 2011, companies will need to send their corporation tax return and supporting documentation in Extensible Business Reporting Language (XBRL). inniAccounts will produce accounts in this format for Premium customers as standard so there’s no need to worry about this one; it’s all included in your service package.

All this online admin can be completed at either Government Gateway or HMRC Online Services, both of which can be accessed from www.hmrc.gov.uk; if you have any queries about how these changes might affect you feel free to drop us a line.

Report Centre provides you with all the financial insight you’ll ever need in a really easy to use format. You can choose from a wide range of reports on everything from to trial balances to mileage tracking, open them with a single click, and drill down to individual transactions to give you a really in-depth view of your finances. If you need to share your reporting with colleagues you can easily download them from Report Centre in a variety of formats, including Word, Excel and Adobe PDF.

Next time you log into your account, click on the ‘reports’ button on your homepage to give our new, improved Report Centre a try – if you have any questions or comments we’d love to hear them and we hope you’ll find that there’s plenty in there to make you look at your reports in a whole new light…happy reporting!

Ever since we started inniAccounts back in 2006, one our key objectives has been to allow you to discard piles of paper work, escape your hard drive and access your financial information wherever you are. Most contractors and freelancers spend much of their time out and about and we’ve always believed that it’s important to know you can keep on top of your latest financial transactions wherever your business takes you. So we’re very pleased to announce that our brand new feature, inniAccounts Mobile, takes ‘instant access’ to the next level by giving you a real, live view of your financial information on your mobile phone – literally at your fingertips.

inniAccounts Mobile gives you instant access to LiveCash, our unique online system that gives you a real, live view of the cash you have available. By accessing LiveCash on your mobile you can quickly check whether you have upcoming bills, view your bank balance and be confident you’re on top of all your upcoming payments… perfect if you’re considering making a few purchases while you’re out and about. With inniAccounts Mobile in your pocket you can also input expenses, timesheets and mileage within seconds, so you can have that latest stationary purchase recorded before you get back from the shop!

inniAccounts Mobile is available to all Plus and Premium customers on the Apple iPhone and all Android handsets, including the Google Nexus One, the HTC Magic and the HTC Legend. To get going, simply open the web browser on your mobile device and navigate to https://secure.inniaccounts.co.uk/mobile.  You can then log in to inniAccounts and you’ll be taken straight to your company home page. In a nutshell, it’s perfect for keeping on top of your cash when you’re on the go.

LiveCash is the new engine room of inniAccounts, where you can quickly access all of your most vital financial information and find it presented in the clearest possible way. It gives you a real, live view of the cash you have available using absolutely no accounting jargon, and shows you exactly how much physical cash you have to spend right at this moment. With LiveCash you can stay on top of your upcoming bills, drill into the details of your income and expenditure and even customise the way you view your accounts in order to see what you want to see, the way you want to see it.

Aside from these and many more brilliant tools, what makes us so excited about LiveCash is the fact that it’s totally unique: whereas most online software displays your accounts in terms of profit and loss, LiveCash gives you a real time view of your available cash as it stands today. The moment you input a new item of expenditure or income into the inniAccounts system it will simultaneously appear in LiveCash, which means you accounting information is always up to date and always available.

If you’re a Premium or Plus customer you’ll find LiveCash sitting at the top of your homepage, so please do give it a test drive the next time you log in. If you’re currently using Lite why not drop us a line to discuss upgrading your account? It’s easy to do and it’ll give you instant access you LiveCash and many other upcoming new features.

Finally, we’d love to know what you think of LiveCash so that we can make it even more useful in the future – if you have any feedback please feel free to contact the team as we always like to get your views. Oh, and stay tuned for news of more new inniAccounts features designed to put your finances at your fingertips!

LiveCash is the new engine room of inniAccounts – a place where you can quickly access all of your most vital financial information and find it presented in the clearest possible way. With LiveCash you’ll be able to stay on top of your upcoming bills, drill into the details of your income and expenditure and even customise the way you view your accounts. You’ll find LiveCash on your newly redesigned company homepage.

inniAccounts Mobile takes ‘instant access’ to the next level by giving you a real, live view of your financial information on your mobile phone – literally at your fingertips. inniAccounts Mobile will give you instant access to LiveCash, plus you can quickly enter timesheets, expenses and milage on the go.  You can access inniAccounts Mobile using either an iPhone or an Android-based handset (such as the Google Nexus One, the HTC Magic or the HTC Legend).

Report Centre provides you with all the financial insight you’ll ever need in a really easy to use format. You can choose from a wide range of reports on everything from to trial balances to mileage tracking, open them with a single click, and drill down to individual transactions to give you a really in-depth view of your finances.  You can even export your reports in Word, Excel or PDF format.

These features are exclusive to inniAccounts – we’re confident that you won’t find a more comprehensive online accountancy service.  If you’re an inniAccounts Plus or Premium client you can access these features today – just login as usual.

The freelancers’ professional body – The PCG – have been lobbying on behalf of contractors and freelancers for the abolishment of IR35 since its introduction by the then Chancellor Gordon Brown in 2000.  The initial objective of IR35 was to close a “disguised loophole”, which allowed contractors to reduce National Insurance and income tax payments by paying a low salary and dispersing profits via dividends.  Today’s announcement by the Tories is the product of ten years of lobbying by the PCG.

HMRC originally expected to raise £220m a year from additional National Insurance contributions alone, however the PCG revealed that IR35 legislation has generated only £9.2m in additional revenue in six years – just over £1.5m per year. In addition, the PCG has been involved in 1,468 IR35 investigations, of which HMRC proved additional tax was due just six times.

Mark Prisk, the shadow business minister said “IR35 has especially proved to over-complex, uncertain and often unfair. At a time when Britain should be open for business, Gordon Brown has made it harder to be self-employed.”  Prisk believes IR35 has cost businesses £73m and he’s pledged that the new “Office of Tax Simplification” would make an IR35 review a priority.

In other Tory manifesto news, they’ve also pledged to reduce the headline corporation tax rate from 28p to 25p, and the small companies rate will be cut to 20p from the current 22p.