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SW2000 Telework Studies
14
Tel. +44(0)1865-760994 Fax 764520
Email noelhodson@btconnect.com
Director – Noel Hodson
This document deals with all
March 12th 02
Thanks for the copy of the
telework High Court tax case
It seems that Mr Evans,
teleworking for a Public Government body as a full time employee, spent 4 days
a week at home in Norfolk and travelled to a central-office in
In contrast, I attach my analysis of my work on the Prudential Ins. home-tele-working program (1994), where as far as I know, the tax allowances for 7,500 teleworkers are still being successfully claimed and have been for eight years. - Noel
*********************************
13
Nov 01 – fax to ………a teleworker, a lawyer ………………………
Dear
Commenting on the threat from your local authority
to levy business rates on you at home.
These cases are very rare
and I’ve never known of a successful Business Rates levy on HomeWorking.
From 1970 to 1980 as a tax accountant I had hundreds of clients, out of 1,500
files, who worked at/from home.
There was a case in 1992
when I wrote the book Teleworking Explained.
A man phoned me and said
the rating officer (Kent or
I advised that taxes
(rates, capital gains on the house sale) could only be levied for “exclusive”
use – and even then only very rarely applied. This was put by the teleworker to
the council and accepted. I no longer have the papers.
This year 2001, my friend
A N Other was reported by neighbours in
In neither case was
change-of-use applied for.
My understanding of the
law follows from hundreds of cases of Sch D versus
Capital Gains. Where a home-worker claims office expenses for Sch. D purposes, HMIT will ask “is this for exclusive
use of the space”. The answer must always be NO, otherwise when/if the house is
sold HMIT will raise a Capital Gains Tax assessment based on the VOLUME or AREA
of the space used for work/business. If the space is not exclusive, (you party
in it, wash the dog etc. etc.) then the capital gains assessment always fails.
There is no reason at all to limit the annual expenses claims – these should be
as robust as possible.
The VAT office uses this
non-exclusive argument in reverse, for example before I built on my home-office
downstairs, I re-carpeted the landing hall and stairs, ruined by clients
tramping up through the house and claimed the VAT. We won the claim (for
business purposes) but HMCE did restrict it on a TIME basis.
We are setting up ITAC-UK
(International Telework Association and Council –
There are about 5 million
traditional home-workers in the
There are about 4 million
telework offices at homes in the
And most persuasive,
nearly every elected politician has an office at home.
If these arguments don’t
wash with your local council – resort to mindless violence and shouting loudly
– or give me a ring and I’ll see if I can write a useful letter. (NB – maybe
check out how they rate National Trust properties open to the public with
teashops etc). Always beware of the latent Capital Gains trap – and never claim
“exclusive-24 Hours-use”.
Best
wishes
Noel
********************************
Now follows: Review of the
text books – law and taxes – for professionals.
The Economics of Teleworking 1994 [1]
Page - [1] NCH-SW2000-Oxford
Part 6
6.1
Legal Notebook:
6.1.1
Many members of the public ask whether it is illegal to work at home
or, if not illegal, is it difficult to comply with any applicable rules and
regulations.
Safety in Numbers - 5 million Home-Workers
6.1.2
The answer is that it is perfectly legal and very easy to work at
home. The most powerful evidence for this is that in the
The Top Drawer Teleworkers
6.1.3
In addition to 5 million ordinary men and women who work at home
in the
A cacophony of law
6.1.4
The relevant legislation falls into 5 categories:-
1. Town & Country Planning Law
2. Mortgage Conditions
3. Landlord and Tenant Law
4. Local Government Law
5. Tax Law
6. Employment and Health & Safety Regulations
7. Union Guidelines
6.1.5
Excluded from this list is the law of property and transfer of
property, which fills many volumes. The
assumption for this paper is that ownership or occupation is not an issue. Items 6 & 7 are not detailed below. Item 6, Employment and Health & Safety
Regulations remain the same for employers and employees. Item 7, Union
Guidelines can be found in the book "Teleworking Explained" Wiley &
Sons ISBN 0-471-93975-7 November 1993.
Never volunteer - advice to the young and the bold.
6.1.6
Before examining each of these five areas, a word of
warning. Never volunteer to be a legal
test case. And if you are called to defend your right to work at home - unless
you are guaranteed backing by a wealthy major employer - give in and abandon
the fight. It will prove cheaper and you
will live longer:-
"In law nothing is certain except the expense"
- Samuel Butler.
"As a litigant, I should dread a lawsuit beyond
almost anything short of sickness and death" - Judge Learned Hand.
"Ninety percent of our lawyers serve ten percent of
our people. We are over lawyered and under
represented." - President Jimmy Carter.
"I had rather that my daughter should be burned at
the stake than to have to suffer what I have gone through with lawyers" - Hetty Green.
"Litigant: a person about to give up his skin for
the hope of retaining his bones" - Ambrose Bierce.
Disclaimer: This summary, Legal Notebook, is for the readers general guidance only. It is not a comprehensive
summary of the laws discussed and any advice it contains are the views of the
authors and are not legally reliable.
Readers must take legal advice before acting on any of the matters or
information set out here. The author/s and publishers do not guarantee the
accuracy of any part of this Legal Notebook text and cannot be held responsible
for any act or omission committed by any person purporting to rely on this
text.
6.1.7
1. Town and Country Planning Law.
If a building is occupied as a home, with the usual
conveniences such as bathrooms, kitchen and bedrooms, it normally requires
permission under planning law as a domestic or residential l building.
Protected residential areas.
This planning permission sensibly protects the public
from finding themselves living next to industrial activities, leisure
activities or commercial activities which would be so
noisy, dirty or dangerous as to be hazardous to their health and detrimental to
their welfare. For example, up to 1955
and probably later, there were several hundred "Coronation Street"
type homes in Trafford Park near Salford & Manchester; then one of the
largest and dirtiest industrial estates on Earth. The average life expectancy
for residents was 38 years. This lethal
mixture of homes and factories was presumably a relic from a less
industrialised age.
Protected industrial areas.
Conversely, industrial and commercial planning permits
tend to protect businesses from the need to be concerned for children and other
vulnerable members of society. They can
be noisy, dirty and dangerous and can generate large numbers of heavy vehicle
movements, secure in the knowledge that the people in the vicinity are alert to
and prepared for the inconveniences and dangers involved.
Grey areas.
As with all rules, human activity does not fit neatly
into planning law. There are innumerable
cases where permission has been granted or withheld and arguments have ensued
over the decisions. Common-sense, if applied
to working at or from home, will in most cases be a sufficiently accurate guide
to what the law intends and be in accordance with the law.
Examples of the Law.
There are 35 main Statutory Instruments (books of rules)
which have been published since 1947 on Town & Country Planning.
Residential or Commercial Planning Permission
For teleworkers, the first level to examine for
home-working is the permission granted in respect of the home in question. In all but the most extraordinary
circumstances, it's planning status will be
Residential, Class C3 Dwelling Houses.
If it is not, then question whether it should be occupied by a
household.
Teleworkers are unlikely to be unknowingly living in
commercial or industrial premises. If
they are, there should be no difficulty in carrying out their work in the
premises. They may have legal
difficulties in continuing to live there however.
Specific Planning Conditions on Residential Properties
The second level is to examine whether any
"Conditions of Planning Permission" affect the activities which can
be carried on. For example in Fawcett
Properties Ltd -V- Buckingham County Council (1961), a pair of farm workers
cottages were built on the planning condition that occupation be limited to
"persons whose employment or latest employment is or was in agriculture as
defined by s119(1) of the Town & Country Planning Act 1947" and the
court upheld this condition.
For modern teleworkers, the definition in the 1947 Act is
unlikely to be stretched to cover working with advanced communications;
however, it is equally unlikely in the unemployment climate of the mid-1990's
that Bucks County Council would now seek to enforce the condition if it meant
depriving a teleworker of their rural home and their rural livelihood - a
livelihood probably beyond the imagination of those who drew up the 1947 Act.
A second more recent case, Alderson -V- Secretary of
State for the Environment (1984), examined a planning condition which limited
occupation to persons "employed locally". There was a legal argument as to what "locally"
meant but in the end the Court of Appeal upheld the condition. It presumably
existed (1) to ensure the house remained affordable to local employees who
would otherwise have to compete with
Another case where activities in the home were restricted
by a planning condition was
It is doubtful whether the conditions imposed in the
above three cases would have prevented, or were intended to prevent other
members of a qualifying occupant's family from working at home, in any capacity
which did not flaunt local bye-laws or inconvenience neighbours (see below for
local bye-laws). Teleworking as a second
job would also appear to be within the conditions imposed.
People who are concerned that their homes may have
planning restrictions which qualify occupants in some manner should have been
advised of such conditions before taking up occupation. They would therefore have a remedy against
the landlords or their solicitors if restrictions do exist and they were not
informed. A telephone call and letter to
the local planning department should be sufficient to elicit the exact planning
status of any building including any conditions; it is wise to specifically ask
about conditions.
Listed Buildings
Listed, usually historic houses or houses of peculiar
architectural merit, often have planning restrictions
placed on them as to any repairs or alterations. In exceptional cases, they may also have
conditions concerning the occupants' work or work place.
"Bad Neighbour Developments" do not include
teleworking.
The construction of or use as:-
a) Public Conveniences
b) Disposal of waste materials
c) Winning or working of minerals (e.g. mining)
d) Sewage Works
e) Exceeding 20 metres (60 feet) in height
f) Slaughterhouses or Knackers Yards
g) Casino, Funfair, Bingo Hall, Theatre, Music Hall,
Dance Hall, Skating Rink, Sports-hall, Swimming bath, Gymnasium, Turkish or
Foam Bath.
h) Zoo's or boarding kennels
i) Motor racing tracks
j) Stadiums (e.g. Football Stadiums)
k) Cemetery or Crematorium
In addition, Circular 71/73 from the Secretary of State
requires owners to put up a notice if their development will create a smell,
vibration, bring crowds, cause noise at unseemly hours or have an adverse
effect on residential areas.
Assessments include traffic generation - but they are
unlikely to affect teleworkers.
Material Change of Use
Working at or from home or teleworking at home
presupposes that the home is a building with residential planning permission
(Class C3 - Dwelling Houses); an ordinary domestic house or apartment. Material change of use would be the term
under which any legal challenge to the occupants’ activities would be most
likely to be mounted.
No threats to home workers.
There are no cases, quoted in the published text books
consulted for this paper, of claims that working at home in itself constitutes
a material change of use and therefore requiring new planning permission. An application for which would probably be
denied in a residential area.
2. Mortgage
Conditions
Mortgage Lenders are many and varied and the rules they
impose or negotiate as conditions for the loan also vary widely. The rules will
generally be designed to ensure the repayments are made on time and, if the
borrower is unable to repay, that the lender can take possession of the
property with as little legal hindrance as possible.
No sub-tenancies
The primary reason that many mortgage loans impose the
condition that no businesses shall be run from the home securing the loan, is the fear on their part of legally defensible
tenancies being created for that business.
The lender will not usually agree, if asked, to any
business, however humble and innocuous, becoming established in a home securing
their loan.
3. Landlord and Tenant Law
For the same reasons as set out above for mortgage
lenders, landlords of dwelling houses generally resist any sub-tenancies,
whether they are domestic or commercial.
Impact on teleworkers
As stated above, the landlord's main anxiety is that a
domestic tenant may create a sub-tenancy for a business or commercial activity
which they carry on at home, and thereby reduce the landlord's legal rights to
evict or involve the landlord in complaints by third parties.
Teleworkers are advised not to attempt to separate or
advertise their activities in a manner which would give the landlord cause for
alarm or place the landlord in difficulties with the local planning authority,
neighbours, bye-laws or insurers.
Perhaps one of the clearest guides to the relationship
between landlords and tenants is contained in the rules governing Assured
Tenancies under the 1988 Act. This was designed to make the law simpler for
both parties and thereby to encourage more private letting. Under s8 of the 1988 Act there are 16 grounds
for repossession of the property; which do not include teleworking.
A sample rental agreement contains the following relevant
clause/s:-
1. "Not during the said term to use exercise or
carry on or permit or suffer to be used exercised or carried on in or upon the
premises or any part thereof any noisy or offensive trade or business
whatsoever but will use the premises only as and for a private dwelling
house"
2. "Not to assign charge underlet or part with the
possession of the premises or any part thereof but in the event of an
assignment or underletting being required by the
Lessee the Lessor shall grant consent to any
assignment or underletting of the whole in the case
of a responsible and desirable person with proper references being put forward
to the reasonable satisfaction of the Lessor."
3. "Not to do or permit to be done on the demised
premises or any part thereof anything which may be or grow to be a nuisance damage
inconvenience or annoyance to the Lessor or to the
owners or occupiers of any adjacent premises."
4. "Not to allow any public meeting or sale by
auction to be held on the premises or permit to be placed on the premises any
bill signboard placard hoarding or other outward mark".
These four sample clauses are typical of conditions which
would give a landlord the right to stop a tenant from carrying on any activity,
including commercial activities, which inconvenience neighbours or which
contravene planning law, bye-laws or insurance rules; or which might annoy the
neighbours.
What is a Business?
"Business includes a trade profession or employment
and includes any activity carried on by a body of persons whether corporate or unincorporate" it should be noted that the
"business" is not carried on by a body of persons whether corporate
or unincorporate (i.e. when the "business"
is carried on by an individual), the "business" must amount to a
trade, profession or employment if the tenancy is to be one to which the 1954
Act applies. Whether a
"business" exists is a matter of degree and fact in each case".
Examples given in Landlord and Tenant by JM Male, Pitman
Publishing, 1993, of activities which fall within the definition of
"business" in residential premises are:-
1. Governors of a Hospital administration.
2. Conducting a members tennis club
3. Church meetings
4. Government Offices
5. Letting furnished rooms
This would appear to not include teleworking as a
"business" and therefore to exempt it from the prohibitions.
Summary
Given that there are 5 million home-workers the
Government and the Courts are unlikely to penalise a home-worker who is acting
responsibly. Landlords fear the legal
establishing of sub-tenancies and can become legally responsible if they
acquiesce to business activities which contravene planning and other
rules. The legal maze surrounding
tenancies is so complex that the knee-jerk reaction from most landlords to an
application from a tenant to work at home is likely to be negative. However, sensible and responsible work at
home is unlikely to nullify a rental agreement and is likely to be supported by
a Court. A tenant could ask a landlord
and be granted express permission without either being disadvantaged under
existing landlords/tenants law.
The best advice is not to ask permission but to get on
with your life and to work at home. If it is necessary to fight a test case,
get your employer to wage the war and to pay for it; otherwise give in and move
home, do not waste your life in legal battles - it will be infinitely cheaper
than going to Court and the sum of human happiness will be greater.
4. Local Government Laws
Local government has responsibility for the local area
and as far as the home worker and teleworker is concerned, the neighbourhood
around the house they are working in or from.
Relevant Local Laws fall into two categories:
4.1.
By-Laws; concerning noise, pollution and nuisances
4.2.
Rating: the local tax revenues usually based on property values
and uses.
4.1 By-Laws
The local authority rules obtain their power under the
Local Government Act 1972 and other statutory instruments. The By-laws will
include control of: music; hawking; touting; loudspeakers; gramophones &
organs; shooting galleries; indecent language; violence in schools; fighting;
indecent bathing; indecent shows; wilful jostling; loitering; advertising;
flags; defacing pavements; broken glass; carrying soot; carcasses; dangerous
games; spitting; bulls; cycling on footpaths; dogs fouling footpaths; noisy
animals.
Teleworkers can identify the items which relate to their
work at home from the above list.
There are few if any cases of homeworkers
or teleworkers being required to desist working at home under local by-laws.
4. 2. Rating -
Local Taxes
Local authority rights to raise taxes date back to the
poor Relief Act 1601 in the time of
Rates or local taxes are essentially raised on
Residential Property or on Commercial Property, apart from a few brief years of
the Community Charge or Poll Tax which we will pass over in an embarrassed silence.
The crucial question for teleworkers and home-workers is, does working at home attract a commercial or Business
Rating demand?
The answer up to early 1994 is no.
5. Tax Laws - Income & Capital Taxes
Tax law has an impact on all commercial activities.
Teleworking is not excluded from this. In recognition of the international
nature of teleworking, this section looks at both
In general, it can be said that most teleworkers and
other home-workers will benefit from tax allowances. As stated earlier, there
is no more economic way of operating a business than living over the shop.
Teleworkers do exactly that and reap the benefits.
There may be valuable tax breaks for teleworkers who work
with the system. As a new method of
working, telecommuting or teleworking has not yet made any impact on the tax
system. The advice set out below is based on current practices which may change
if millions of teleworkers make tax claims for home offices and other expenses.
National Tax Regimes
Whilst tax rates vary throughout the western world
economies, the statutory rules tend to be similar and the overall direct and
indirect tax collections, as a percentage of income, are also similar. From
studying the tax allowances for deductible expenses it can be seen whether a
nation is encouraging or discouraging teleworking, or whether it has no policy.
Taxes, worldwide, tend to fall into familiar categories:
1. Withholding
Payroll taxes - Pay As You Earn, deducted at source
from wages and salaries after various fixed allowances, usually monthly.
2. Social Security
& Medicare or National Health (Insurance) contributions - Usually a
percentage of salary paid part by employers and part by employees.
3. Income taxes - reported by
the tax payer as a self calculation of income and tax deductible expenses,
usually annually.
4. Benefits taxes
- reported by the giver or receiver, usually payable by the recipient, on
non-cash benefits such as free cars, free accommodation and interest free
loans.
5. Sales Taxes or Value
Added Taxes - indirect taxes added to the price of goods and services. Often recoverable by business consumers but not by private
individuals.
6. Capital taxes -
levied on gains or profits from sales of assets and investments including
property. Rarely levied on nominal increases in value in the
absence of a sale.
7. Property rates
or local taxes - Usually calculated as a percentage of the values of property
and collected by the local state, county or town authority.
8. Interest on
business loans and residential mortgages- Not a tax but the tax relief on
interest payable on such loans or mortgages is a major tax consideration for
teleworkers with offices at home or in second homes.
WHO CAN CLAIM AND WHO PAYS
Rule 1. He who pays the piper calls the tune. The person or organisation who pays the
expense is the one who is entitled to claim the tax relief or deduction.
Rule 2. Any benefit to an individual is taxable. If an employer pays part of your home office
expenses either directly by, for example, sending a payment to the electricity
company, or indirectly by paying the money to you, then you have received a
benefit which must be reported and you must claim the original invoice as an
allowable business expense, to offset the tax on the benefit received.
Rule 3. Tax laws can be contradictory and confusing.
Tax officers are paid to collect tax. If you ask their opinions on whether an
expense is allowable, they are likely to say no. Check with a tax advisor.
Rule 4. Tax laws may not have caught up with
teleworking. Argue your case for tax
allowances and persuade your employer to argue the case for you. Keep in touch with and consult other
teleworkers on their tax claims. Don't be isolated and don't try to fight City
Hall on your own resources.
Rule 5. You cannot get tax relief on costs you have
not paid. There must be an invoice or claim from a third party and you must
have paid or will pay that invoice or claim, to apply for tax relief.
WHY BOTHER - WHAT'S AT STAKE
There is a great deal of money at stake in tax claims
for Teleworkers, whether they are based
at home, are travelling, are hot-desking, employed or self employed.
Any expense you pay, for example a home office heating
bill of œ500, costs
several TIMES more without tax relief than with.
Elec Bill. Tax.
Taxed Income. Tax relief. Factor
£500
10% £555 £450 1.2
£500
15% £588 £425 1.4
£500 20% £625 £400 1.5
£500
25% £666 £375 1.8
£500
30% £714 £350 2.0
£500
35% £769 £325 2.3
£500
40% £833 £300 2.8
£500
45% £909 £275 3.3
£500
50% £1000 £250 4.0
£500
55% £1111 £225 4.9
£500
60% £1250 £200 6.2
This table shows that the higher the rate of tax you pay, the more valuable it is to make the claims. For example, at a 60% tax rate, the last line
of the table, to bring home enough money to pay a £500 bill requires pre-tax
earnings of œ1250. But, if œ500 is
deductible at 60% rate, the net cost is £200 or 6.2 TIMES less than paying the
same bill out of taxed income. This
table particularly applies to those expenses previously incurred prior to homeworking which become tax deductible when homeworking; and is particularly applicable to
self-employed persons.
If the days of 60% income tax rates return to
In the
In the
While different authorities allow different expenses, the
following lists the main items which you should consider claiming; though not
all may apply in your case:-
1. An office or
workshop at home:
If you use your home as your main place of business then
those expenses which would be incurred in similar commercial premises can be
claimed:-
a) Heat, Light and
Power
b) Telephone call
charges
c) Depreciation of
furniture
d) Depreciation of
carpets or floor coverings
e) Depreciation of
fixtures and fittings
f) Extra power
points and telephone sockets
g) Office
equipment and stationery
h) Postages and
copying
i) Cleaning including window cleaning
j) Coffee, milk,
sugar for meetings
k) Assistants'
wages
l) Refurbishing or
redecorating the area
m) Extra security
measures including guard dogs
n) Business
Insurances
o) Professional
fees
p) Entrance and
Gardens improvements and maintenance
q) Extra parking,
garage or storage area
r) Interest on
property improvement loans or mortgages
s) Local property
taxes or rates
t) Protective
clothing
u) Child Care and Creche’s (see next page)
(see Capital Taxes below for
apportioning expenses)
To draw a list of expenses, imagine moving to a
commercial area and renting a space. All
the expenses which such premises would incur may be incurred at your home
office and, providing they are necessary for you to perform your work or
business, may be claimed. Claims may not be agreed, however, and professional
advice should be sought, particularly in the first year when precedents may be
established for many years to come. Keep
detailed records of what you buy and why the work needs it.
CHILD CARE AND CRECHES
It is virtually impossible to be a primary carer for
children or others and do a professional teleworking job from home. But
misogynist
In the
Chief Executives and Junior Clerks:
The level of claims depends on the type of work performed
and the accepted style of working environment required to carry out that
work. For example; a chief executive
working at home and seeing colleagues, suppliers and customers there, can argue
for a more expensive (and therefore credible) environment than a clerical
worker needs.
2. Other
teleworking locations:
A teleworker may work from a mobile home, a road vehicle,
use a telecenter, work from hotel rooms, or may live
and work on a boat. For tax expense
claims the same basic logic applies:
A) Is it your primary place of work or business, your
business address ?
B) Is it known to be your place of work or business
(printed cards, letterheads)?
C) Has the expense been incurred as a necessary part of
your work or business (would your work be curtailed or made impossible without
the expenditure).?
D) What expenses would be incurred and allowed for tax if
you were to hire or rent or buy the same facilities commercially, to enable you
to do your work ?
E) Any expense, paid or to be paid, which meets the above
criteria, can be claimed by a teleworker; wherever they chose to live and work.
3. More than One office:
Generally an employed teleworker will find it difficult
to justify claiming expenses for more than one office. Though
such claims may not be impossible.
For example an employed engineer may establish an office
or workshop at home, then go on a field trip leaving a
member of the family to handle communications with central office and
customers. If the engineer used the
family's holiday home as a secondary base in the field, then expenses might
also be claimed for that "use of home as office" while still claiming
expenses for the original home base. It
would need to be demonstrated that two offices had to be in operation to enable
the work to be done.
There is no difference in principle in tax law between
the claims of a corporation needing more than one property for business, than
it is for the individual. It is however
more difficult to prove the need in the case of an individual who necessarily
leaves one office empty when using the other.
A self-employed teleworker, in tax terms, has the
advantages of being treated as a "business" with the disadvantages of
being a sole operator. The self-employed
may be more successful than employed teleworkers in proving a case for two
locations.
INTEREST ON LOANS FOR HOME OFFICES
Borrowing to build an office on to your home creates a
mortgage or loan the interest on which in the
If your employer were to advance a loan for the purpose
and waive interest, you would be taxed on the notional interest as a benefit,
as long as you are the owner of the property.
At present, tax law lags behind teleworking and home
offices, making it very difficult to build on for that purpose. But ask your
tax advisor if there
are ways round the obstacles and lobby your political
representative for changes to the law.
4. Working
Overseas
It is beyond the scope of this book to advise on the
complexities of foreign residency and ex-patriot working; involving
double-taxation agreements between nations.
Teleworking does however allow people to work far from their central
offices. In principle the costs incurred in working remotely are allowable for
tax purposes. Such costs would include the communication system and call
charges; video conferencing; tele-conferencing;
necessary travel between locations; and mailing costs.
Teleworking is a relatively new activity but as it grows
some teleworkers will choose to work from foreign countries. Their residence for tax purposes will depend
both on the laws of their host nations and upon the laws of their home
nation. Double tax agreements have been
in place for years to deal with such cases. They work, in principle, by taxing
the income twice (though this rarely happens in actuality), recording it on tax
returns in both countries. Depending
upon the tax residence status of the individual, one country receives the tax and the other credits
the amount paid.
For example, if the tax residence remains in the home
nation (USA), then the annual tax payable is calculated as normal, the tax paid
to the host nation is credited and the taxpayer pays or is refunded any
balance. Thus the taxpayer pays the rates
of tax of his home nation.
As teleworking grows, it is not unlikely that wealthier
"home" nations will review their double-taxation agreements and
definitions of residency to ensure they do not lose income tax revenues while
supplying jobs.
5. Travel Costs:
Telecommuting confers one of the greatest benefits of
teleworking. It saves time, money and personal stress. If the home or local telecentre is established as the usual place of business,
then the costs of travelling from that location rank as tax deductions.
Generally, the cost of commuting from home to a central location is not tax
allowable. The majority of employees in
the
Example
Commute Costs pre-teleworking
@ say 20 pence/mile for 6000 miles p.a. = £1200
Tax at 30% makes pre-tax cost = £1714
======
Commute costs post-teleworking say 1/5th
= £ 240
Tax relief at 30% gives net cost = £ 168
======
Benefit to telecommuter per annum = £1546
=======
Table
Motoring costs - and private use:
There is a general rule that no expenses tax claims can
succeed if based on estimated or composite figures which do not relate to
actual invoices or cash paid. Tax officers usually will not accept claims based
on published composite rates such as the AA rate or the AAA rate. An exception to rule this appears below.
OWN CAR
In the
For example, if an employee's (2000 cc engine) car
travels 8,000 business miles in a year and is reimbursed by the employer at the
AA rate, the employee will be taxed on a benefit of 51 pence on the 1st 4,000
miles = £2,040 and 27 pence on the 2nd 4,000 miles = £1,080. A total benefit of
£3,120 @ 25% tax = £780. The individual
can opt to submit a (very) detailed account of expenses reimbursed less actual
costs and be taxed on any difference.
Few elect to go through the process.
COMPANY CAR
Where a (+2001 cc engine) company car is supplied in the
SEDENTARY
Where a teleworker shows less than 2,500 business miles a
year on a company car, the car value benefit will increase by a half to £6,660,
the fuel benefit remains at £940 and, if the tax rate is 40%, will pay tax of £3,040.
The company will pay a further £790 National Insurance (Social Security)
tax. For the time being, until the
regime changes to perhaps include a carbon tax to discourage motoring, it pays
THE HOME BASE BENEFIT - MANAGERS JOURNEYS
As calculated above, teleworkers who establish their main
office at home and can therefore claim journeys to central office as business miles, benefit, at 40% tax rate, by a factor of 2.7 on their
costs of getting to central office and back.
Clearly, a manager of dispersed teleworkers who travels to see them at
their home or local bases can also claim the journeys as business miles.
6. Capital Gains on the Home Office
A Capital Gain on office use at home may only arise if
you have made claims for business expenses. If you work at home but make no
expense claims then the tax discussed here should not apply to you.
The USA Internal Revenue Service and the UK Inland
Revenue may levy a Capital Gains tax on that part of a residence which has been
claimed for business use. This potential
tax worries many home based teleworkers but its impact may be less serious than
is feared.
Background:
Claiming expenses for using part of your home for work indicates that
the office is a business "asset".
Having enjoyed tax relief on related expenses for the
space, the Revenue view a sale as being separate from the normal non-taxable
event of selling your prime residence or main home. The tax authorities are not interested in the
zoning or planning status of your home and office (see Planning Law - above)
In the
1. Any Capital
Gains Tax (CGT) may be payable only if the house changes ownership, on a sale
or death for example.
2. In calculating
a potential profit, the AREA previously claimed for business use modified by
the TIME for which it was claimed are divided into the total profit.
3. The total
profit on transfer of the house is the difference between the cost and the sale
price or the cost may be replaced by the VALUE at March 1982.
4. The total
profit is reduced by a process known as indexation; which sets aside the
increase in value in the property as a result of inflation. The Revenue indexes are below the real levels
of inflation but do account for much of the increase.
5. The total
profit is further reduced by sale expenses including agents and legal fees and
in some cases vital repairs.
6. Expenses
specific to the business area may be deducted from the business portion of the
profit.
7. Substantial
retirement relief on the sale of business assets is available in the
8.
9. Personal annual
exemption on Capital Gains is œ5,500
The tax laws on Capital Gains on home offices are
generally flexible enough to postpone any gain until retirement, at which point
retirement or age relief will generally wipe it out. Cases of people actually paying Capital Gains
Tax on selling their homes, are rare.
However, before deciding to overwhelm the Revenue offices
with claims for use of home as office, calculate the economic balance between
annual Income Tax relief and a possible future Capital Gains tax bill. The most efficient strategy is to claim high
annual expenses for a very small home office, not used all the time for
business.
Example:
(an average tax rate of 30% is
used)
Income Tax:
Annual Expenses claimed and allowed -
£10,000
Value to Teleworker (see above) -
£20,000
15 years teleworking = £300,000
Assume cash is saved (or not borrowed)
Plus Interest at
2.5% = £358,000
=========
House Cost
£400,000
Gain
£400,000
Space claimed
as offices 1/5th
£ 80,000
Capital Gains Tax @ 30% = £ 24,000
=========
Benefit to teleworker £334,000
===========
This calculation assumes that none of the nine possible
reductions of the capital gain, as listed above, apply.
Readers should refer to their accountants for more
information, and check the indexes, sources and references in this book, for
publications which may be helpful.
6.2 Future View
Career Path of the
Future - 1994 to 2024
For example; a young woman aged 26 currently training
(1994) in a traditional professional city firm will find more senior staff
teleworking over the next 2-3 years. The
firm will devise a formal teleworking policy and, influenced by international
business opportunities, will improve their communications systems and encourage
flexible hours, at the office or at home, to service clients in other time
zones. Access to the firm's information
banks will be made location independent and opened to most employees. Should the young woman have children in 1997,
she might keep her job at say, 10 hours a week, mostly worked at home, with
refreshers and training some days a year at central office. As her children grow, (2007) she may increase
her work hours slowly back to full time - still from home but meeting
colleagues and clients elsewhere. Now,
perhaps needing a change, she could opt to return to central office, adding
training and management to her duties. Years later nearing retirement, she could opt to work from
her home by the sea, her Yurt in
6.3
The Public Good - a social perspective.
There are claims that home-based teleworking is good for
business and good for the community. The figures in the business cases above
outline the business and individual cases; the pro's and con's for the
community include:
6.3.1 Family and Friends:
If a company extended teleworking to 100 people usually
travelling 15 miles a day, the home-based people would between them save 11,750
hours a year from commuting, equivalent to 1,566 working days. This time can be used for hobbies, sports or
simply to spend time with their families.
Most people would regard this as a social benefit.
6.3.2
Traffic De-congestion:
Commuting into cities at peak hours generally takes twice
as long as usual. For example, commuting from
6.3.3
Traffic Pollution:
The home based teleworkers would save circa 15 commuting
miles 5 days a week, totalling circa 350,000 miles and thereby save 14,000
gallons [64,000 litres] of petrol/diesel a year. This average fuel saving
applies whether they would commute by car or train. That amount of fuel in turn generates 25.2
million gallons [115 million litres] of undiluted, lethal exhaust gas at street
level. Fortunately, exhaust gas is rapidly diluted to concentrations that
merely make people ill.
6.3.4
The Sunday Times and Friends of the Earth jointly studied levels
of gas inside and outside vehicles in heavy traffic jams. They found, in March
1994, that concentrations were as much as 31 times higher in the vehicles than
outside. It is healthier to keep the car windows open. Unpublished government data analysed by New
Scientist in February 1994 and using a method devised by Joel Schwartz of the
US Environmental Protection Agency, resulted in the following:-
Effects of dust or particulate matter (PM10) emitted from
vehicle exhausts.
Annual total deaths in
Specific Locations
Number of Deaths
Table 6.3.5
6.3.5a
For every death, from these poisonous micro-dust particles from
exhausts, there are tens of thousands of children and adults suffering from
breathing disorders and asthma; many of whom are on regular medication and some of whom need to be hospitalised.
6.3.5b
The 25.2 million gallons of exhaust gas reduction due to
home-based working by 100 The company's people, would not only maintain their
own good health (as they would be most exposed to it) but reduce street level
pollution for all town users. This has a health cost benefit for the district.
6.3.6
Driving less miles results in fewer road accidents. It is possible to calculate the reduced
hospital and health care bills and the reduced car body repair bills resulting
from the 350,000 per annum fewer commuter miles saved. Lower mileage means less
depreciation of the car and lower service bills. 50% of
Teleworking makes good business sense, good environmental
sense and good PR
6.4
Bibliography:
Tax Law Sources:-
Inland Revenue Booklet 480(1992); Tolley's tax Cases
1989; Tolley's
Tax Planning For Private Residences 1992;
Tolley's Tax data 1992-93; Telecommuting Review report on Soliman -v- IRS; IRS
booklet Travel Entertainment and Gifts 463, 1992; IRS booklet Tax Guide For
Small Businesses 334, 1992; IRS Booklet,
Selling Your Home, 523, 1992; IRS,
Employee Business Expenses for form 2106, 1992.
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