Changes to use-of-home deductions win approval

The government is changing the law to put business partners on an equal tax footing with freelance and self-employed sole traders when using a home for business purposes.

The amendments, published in draft legislation for Finance Bill 2015, will let a business partner claim the same fixed deduction rates as a sole trader when using a home for business.

Such partners will also have parity with sole proprietors in terms of the fixed deduction allowable for the private use element of mixed home and business premises.

Costs covered by fixed deduction rates include those for heat, light, telephone and internet. And depending on the extent of home-business use, the annual deduction can be up to £312.

Tax body the ATT welcomed the legislative amendments, saying that they have the potential to “make tax easier, quicker and simple for small business” owners.

But it says the focus must now be on consulting on the take-up and effectiveness of the deductions, which were actually introduced as simplification measures in April 2013.

“Now - after the first year of the fixed deduction option- … how many taxpayers have decided to use those deductions?” asked ATT’s president Natalie Miller.

“From 31 January 2015, HMRC will have that information as most taxpayers will have submitted their tax returns showing their taxable business profits for the 2013/2014 tax year.

“With this information, it will then be possible to see whether any adjustments are required to the provisions. We think there is a strong case for publication of data on the use of both the fixed deduction provisions and the cash basis provisions.”

Ultimately, she added, the provisions need to achieve the simplification and efficiency which small British businesses are “desperately looking for.”