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Did you know your client could be landed with a penalty if they fail to tell the Taxman when they become liable to pay tax? For example, when your client became self-employed, or made a large capital gain. The deadline for declaring that your client has income tax or capital gains tax (CGT) chargeable relating to the year to 5 April 2013 is 5 October 2013.

If they miss that deadline, the Taxman may send your client a failure to notify penalty, which can be up to 100% of the tax due. However, if your client pays all the tax due on time, which for income tax and CGT relating to the 2012/13 tax year is by 31 January 2014, the penalty can be reduced to nil.

Where your client has already received a self-assessment tax return form to complete for 2012/13 or a notice to file a self-assessment tax return online, your clients obligation to tell the Taxman is satisfied when they submit their tax return on time. But if your client hasn’t got a tax return form, they need to ask the Taxman to set them up in the self-assessment system before 5 October 2013.

Once your client is registered with the Tax Office, they should receive either a Tax Return form or a letter from the Taxman asking them to file a Tax Return online. The form or letter will include your clients Unique Taxpayer Reference number (UTR). If your client submits a Tax Return that does not include their personal UTR number it may be rejected, and any tax payments your client makes will not be promptly matched to their records.

Two potential methods for calculating business use of home

If your business is eligible to use the new simplified accounting method, then as from 6th April 2013 you have two options to work out how much to claim for business use of home.

If your sales are under the VAT threshold, which at the moment is £79,000 a year, and you are a sole trader or in a partnership where all the partners are individuals rather than corporate bodies (so if you are in a partnership and one of the other partners is a limited company, that’s not you), you’re eligible to use the simplified accounting method, and one option this method allows is a flat rate calculation for business use of home.

The flat rate method

This simply asks you to look at how many hours a month you spend running your business at home, on average, and then include a fixed amount in your accounts for business use of home.

The amount varies with the number of hours per month you work at home, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

Using this method will certainly be quicker than working out your actual costs, but the figure might not be as high and so you could save time but pay more tax.

The second method, which is the method you’ll have to use if your business is not eligible to use the simplified accounting method and which is also the method that has to be used for accounts dated up to and including 5th April 2013, works like this.

Analysing the costs method

If you want to claim part of the actual running costs of your home in your business accounts, then how much you can claim depends on the type of business you have and what work you actually do at home.

For example, if you’re a freelance decorator you might spend an hour or two a week writing up your books at home, but spend the rest of your working life at your customers’ properties. But if you’re a self-employed PR consultant or web designer, you may well do the vast majority of your work at home and only occasionally visit clients.

HMRC say that you need to apportion the running costs of your home on a “fair and reasonable” basis between the private element of that cost – the part that relates to you actually living there – and the business element. But how do you do this?

One method is to work out how many rooms you have in your home, and identify how many of those rooms you use for business – and also calculate how much time you actually use these rooms for business.

Just remember that it’s not a good idea to use any part of your home solely for business activities all the time and never use it for any private activities, because capital gains tax will then be due on the part you use just for business if, and when, you sell your home. Instead, try to make sure that your work space serves a dual purpose – for example, my own office at home is also my music room, and I could easily prove that to a visiting HM Revenue inspector because there’s a piano in there.

So, say there are 10 rooms in my home. I only use one for business, and 90% of the use of that room is for business. So I would add up all the costs I can claim, and multiply that by 1/10 and then by 90%, to get my accounts figure for the business use of my home.

But what running costs in my home can I actually include in my accounts?

Costs you can claim

Here are some of the costs you might incur to run a home, which you may then be able to claim part of in your business accounts:

Mortgage

If you’re buying your home through a mortgage, you can claim a proportion of the interest only – not the capital repayment.

Rent

You can’t charge your business rent when you’re self-employed, because legally you are the business. But if you’re renting your home from a landlord, then you can claim a proportion of the rent for your business.

Council tax

You can claim a proportion of your council tax cost. However, depending on how much you use your home for business, you may have to pay business rates rather than council tax.

Light and heat

You can claim the business proportion of your gas and electricity costs for lighting and heating in the room(s) you use for business.

Telephone and broadband

Remember that what you can claim for your telephone and broadband is not apportioned on the basis of the number of rooms in your home, but on what your actual usage of the line is.

You can claim the full cost of all your business use of the line, and a percentage of the line rental, based on how much you use it for business purposes and how much is for personal use.

Property repairs

If a property repair relates solely to the part that’s used for business, you would include this cost in your accounts in full, subject to the business use of that room.

So for example, if the ceiling in my office/music room was repaired and that cost £200, I wouldn’t need to divide that by 10 because the repair was only for that room – I would just multiply by 90%, and include £180 in my accounts.

If the repair is to the whole house, for example a repair to the roof, you can include that in the same proportion as you would the rent or council tax – so in the example of my 10-room house, the repair cost x 1/10 x 90%.

But if the repair is just for a part of the house that’s not used for business – such as replastering of a kitchen – then you can’t claim any part of that repair in your business accounts.

Water

If you use a lot of your home water supply for business – for example if you run a car valeting service – then you would need to apply to the water company for this to be separately charged, and you could claim the full cost.

But if your water use for your work is only minor, you can’t claim any of the cost for your business.

Claiming costs of working at home is not as simple as it initially sounds. If you’re in any doubt as to what you can claim, you should seek further advice from an accountant.

If you haven’t made a Will, you should do so without delay. If you don’t have any relatives you want to leave your estate to, consider making a Will that leaves most of your assets to specified charities. This avoids the potential problem of intestacy (dying without a Will), and saves tax as gifts to charities are free of inheritance tax. However, there are two traps to avoid:

Identifying the charity

Many charities have merged or changed their names in the recent past, so when it comes to distributing the estate according to the Will, it may be difficult to work out exactly which charity you intended the funds to go to. To avoid this problem make sure your Will states the charity’s registered office and charity number. You can also include a clause in your Will specifying that the gift should be directed to any organisation that amalgamates with the original charity.

Residue of the estate

The second problem can occur where the charity has been left an undefined amount in your Will, such as the residue of your estate. This can lead the charity’s officers hassling the executors, querying deductions such as legal fees and in extreme cases challenging the distribution of your estate in Court. To avoid this problem leave specified amounts of cash or assets to your chosen charities rather than the amount left over after other gifts have been made and any tax paid.