A recent court case may have important implications for entrepreneurs working from home. This ruling has highlighted that entrepreneurs need to thoroughly and carefully research the rules in order to ensure compliance, or be able to present their case properly..

There are many opportunities these days to work from home, either as an outsourced employee or as a self-employed contractor/service provider. Whatever type of work you undertake (or are considering undertaking), it is essential to find out exactly where you stand as far as income tax and deductible expenses are concerned.

This recent case highlights the confusion that can result as the rules are open to misinterpretation. It involved a taxpayer who is a self-employed electrician who worked on various sites – he travelled to work by car and claimed motor expenses for the journeys. Citing a decision in the Horton v Young 47 TC 60 case, the electrician claimed that his home was his work base and all travel to work sites was exclusively for the purpose of his trade. He had no other office and all of his business records were kept at his home, which was the address used for business correspondence, and also the base where he kept his tools of the trade and equipment.

HMRC disallowed the electrician’s travels claim, saying that although he might do some of his administrative work at home; it was not the place where he carried out his trade. He was told that his travelling costs were not allowable as they were not wholly and exclusively for the purpose of his business.

The First-tier Tribunal ruled that a subcontractor (such as the electrician) needed a business base from where to arrange his work and that this administrative work forms part of his trading activity. As this administrative work, was carried out at his home, then this in fact was his business base. His appeal was allowed subject to figures being agreed.

Clearly, when claiming tax-deductible travel expenses it is essential to remember that each case will differ. However, because securing, arranging and planning work are integral to the process of contracting for work, if the claim is actually supported by the facts, a contractor’s home can also operate as a business base. This will mean that travel expenses incurred in getting to the site where the actual work is carried out may qualify as a deductible expense.

As more people are opting to work from home, it is essential to understand the rules for deductible expenses and how they should be applied.  The “Wholly & Exclusively” rules are open to interpretation and it’s important to work out exactly where you stand as far as these rules apply to you.