The FreeAgent Blog

How to save on gas and electricity bills when you work from home

Posted on 15 November 2018 by Emily Coltman - Jump to comments

Electrical socket turned on

Working from home has many advantages but at this time of year, having to bear the cost of cranking up the heating and turning on the lights in the middle of the afternoon isn’t one of them.

If you’re reluctant to receive an exorbitant energy bill just in time for Self Assessment, you might be thinking about wearing your winter woolies to brave it through the cold, dark days. Fear not! there is a more comfortable way to save on gas and electricity bills when you work from home.

Claiming tax relief on energy bills

HMRC allows you to use a “reasonable method” to claim a proportion of the gas and electricity costs in the part of your home that you use for business. Here’s how you work it out:

1. Count all the rooms in your house

Count all the “normal living spaces” in your home - in other words, exclude bathrooms and hallways. If your office is separate from the main house, for example, in the garden, and is billed separately, you should treat it as a one-roomed house. If its utility costs are included in the rest of your household bills, treat it as an additional room.

2. Identify the rooms that you work in

You need to work out what percentage of time spent in each room is business and personal. If you spend ten hours a day in your living room, nine hours for personal time and one hour for business, then 90% is personal and 10% is business.

If you work in a dedicated room, such as a home office, you might well spend 100% of your time in there for business. However, you should be aware that if you have an entire room dedicated to business use, you will need to pay Capital Gains tax on it if you sell your home. A way around this is to make the room double as something else, like a music room or a workshop.

3. Divide the cost of your bills between the rooms in your house

There is no official guidance on this calculation other than that your method should be “fair and reasonable”. One suggestion could be to take each of your bills separately and then divide the cost evenly between the number of rooms in your house. For example, a five room house with a gas bill of £460 will come to a cost of £92 per room (£460 ∕ 5 rooms = £92 per room).

Another method could be to work out the percentage of floor space for each room and multiply that by the total cost of the bill. For example, if your office takes up 10% of your home’s overall floor space and your electricity bill is £300, the room cost would be 10% x £300 = £30.

4. Apply the percentage of work use to the relevant room costs

So far you’ve worked out:

  • the percentage of time you spend working in each room
  • for each bill, the total cost that applies to each room

Now you can reduce your gas and electricity bills by working out the business cost of each and claiming them as an expense on your Self Assessment tax return. For example, if you spend 90% of your time working in your home office and the total cost of heating that room is £92 you would claim:

£92 x 90% = £82.80 as business expenses

And if in the same room the cost of electricity is £30:

£30 x 90% = £27 as business expense

That’s a total of £109.80 saved on your energy bills. Not bad!

Can I use this method for other bills?

Yes, you can! Find out everything you need to know about claiming expenses for the business use of your home.

The flat rate method

The flat rate method is a simple alternative to claiming the costs of energy bills and is available to sole traders and partnerships where the partners are individuals, not limited companies. It allows businesses to claim a set amount of tax relief for the business use of their home depending on the number of hours spent working at home each month. The rates are:

Hours spent working at home per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26

Bear in mind that costs calculated using the flat rate method might not be as high as the other methods suggested above.

Looking for an easy way to manage your business expenses? Take a closer look at expenses in FreeAgent.

4 business lessons to learn from Queen

Posted on 8 November 2018 by Adrian Mather - Jump to comments

A hand holds a crown in the air

With the recent release of the new biopic movie Bohemian Rhapsody, the flamboyant world of Freddie Mercury and Queen is now firmly back in the spotlight.

So with the likes of We Are the Champions and Fat Bottomed Girls blaring out on our Spotify playlist, we wondered whether there were any lessons that businesses could learn from the legendary rock group. Here are our top four:

Work with the right people

Individually, every member of Queen was responsible for writing some of the band’s bona fide classic songs, whether it was Freddie Mercury (Bohemian Rhapsody), Brian May (We Will Rock You), John Deacon (Another One Bites the Dust) or Roger Taylor (Radio Ga Ga). But without their combined creative, collaborative skills, the band may never have had the success that it did.

In business it’s equally important to build a good team around you. By choosing talented, skilled people who you can trust to take responsibility for their specialist roles, your business should run more harmoniously and efficiently. Remember that your team doesn’t need to be made up of people within your business. Even if you’re a one-person operation, you’ll still need to work with the right suppliers, collaborators or third-party specialists at times, so make sure that you choose wisely when it comes to these “band members” too.

Challenge yourself (and your team)

There are plenty of legendary stories about Queen falling out with each other in the studio amid blazing rows. But more often than not, these disputes were down to the pursuit of artistic and musical perfection among people who were passionate about their craft, rather than personal gripes.

Of course, hurling chairs at each other during a full-on screaming match is unlikely do you or your business any favours, but don’t be afraid to respectfully challenge yourself and your colleagues. Healthy discussion and teamwork is far better than simply having your staff implementing your ideas without question, and it may uncover new avenues of business growth that you hadn’t considered before.

Always make the most of your opportunities

In 1985, Queen were 15-year rock veterans with a string of memorable chart-topping hits in the bag, but they never rested on their laurels and were always looking for new ways to promote the band.

The chance to play Live Aid at Wembley Stadium in front of a global TV audience of 2 billion represented a huge chance for the band to put themselves further into the limelight. With a blistering 20-minute primetime set, Freddie & co wrung as much as possible out of this opportunity, putting in a performance that’s still regarded as one of the finest of all time.

The lesson? Even if your business is well established, it’s similarly important to take advantage of new opportunities when they arise. Whether you’re pitching to a new client, attending a networking event or presenting at a conference, give it your full focus and put on your very best performance.

Be creative and take risks

A key factor in Queen’s success was their willingness to take risks for their art. Just look at the song Bohemian Rhapsody:, an operatic, six-minute opus that record execs thought was too long and complex to be a hit, but ended up selling a million copies and spending nine weeks at the top of the charts.

Sometimes you have to be willing to get creative if you want your business to grow and flourish. Don’t be afraid to take risks that your competitors may not have thought about so, like Mercury and his bandmates, you can stand out from the crowd.

Zombie companies: how to know if your business is walking dead

Posted on 31 October 2018 by FreeAgent - Jump to comments

A green, deteriorated, Zombie-like arm raises from the ground in a graveyard.

They limp along lifelessly, feasting on the resources of business owners and their employees, groaning and wandering aimlessly. This is the dawn of the dead business model: zombie businesses.

One of the key signs you’re operating a zombie company is that it’s only making enough money to pay off the interest on your loans to the bank. Without any cash, there’s no money for investment to fuel growth. But things aren’t dire either! You can still pay off your suppliers, make payroll every month, pay the rent and keep the lights on.

What separates zombie businesses from thriving ones is a lack of means to grow. Like their flesh-eating counterparts, they’re not fully dead, but they’re not fully alive either.

The looming threat of zombie businesses

There’s only so long that zombie businesses can survive without growing. Eventually, something will kill them off. Whether it’s a change in the market or a lack of funding, these businesses simply aren’t sustainable.

Ultimately, it’s the business owners and employees who stand to suffer. With recent research suggesting that there are 49,000 of these businesses operating in the UK today, the zombie company is a monster you can truly be scared of this Halloween.

Signs you might be running a zombie company

Do you suspect your venture might have joined the realms of the undead? Put your objective hat on and have a cold, hard look at your business.

  • Are you losing customers at a faster rate than you’re gaining them?
  • Are your competitors dominating your market?
  • Do you have a great offering but people just aren’t interested in it?
  • Are you making plenty of sales but just can’t turn a profit?

If the answer to any of these is yes, there’s a good chance your business is suffering from the zombie plague.

Time to pull the plug?

Deciding to let go of a business is not an easy decision. You’ve worked on it day in, day out and have invested a huge amount of emotional energy in it. However, if you go on you’ll be doing yourself a disservice. Your energy, creativity and expertise should be put to use in a business which stands a chance of survival. Maybe it’s time you brought death to your undead business?

Closing down your business may feel like a dark cloud, but research suggests there’s a silver lining for those who are able to view the failure as a positive development experience. A 2014 study by Stanford University economics Professor Kathryn Shaw found that entrepreneurs who had previous ventures — even those that had failed — increased their chances of success as a result of the lessons they learned from the previous businesses.

Your decision to move on may be your opportunity to move up.

Thinking about your next venture? Here are four ways to finance your business without a bank loan.

Autumn Budget 2018: what's in store for small businesses?

Posted on 30 October 2018 by Emily Coltman - Jump to comments

budget briefcase illustration

The government may have opted for a Monday afternoon Budget over the usual Wednesday to avoid Halloween jokes, but what ghoulies and ghosties lurked in the Autumn 2018 Budget for small business owners?

IR35 changes in the private sector

At the moment, if you’re a contractor and your clients are in the private sector, it’s up to you to determine whether you are an employee in all but name and should follow the IR35 rules.

From April 2020, if your clients are “medium or large” businesses, it will be up to them to assess whether or not you are caught under IR35 – meaning you should be taxed as an employee rather than as a contractor without receiving the benefits of employment such as holiday pay.

This rollout to the private sector follows controversial changes made to IR35 rules in the public sector in April last year.

The Budget report did not define a “medium or large” business, but my suggestion would be that this will follow the Companies House thresholds, where a small business is one that has at least two of:

  • annual turnover (sales) not more than £10.2 million
  • the balance sheet total not more than £5.1 million
  • the average number of employees no more than 50

A medium-sized business is one that has at least two of:

  • annual turnover (sales) not more than £36 million
  • the balance sheet total not more than £18 million
  • the average number of employees no more than 250

And a large business is one that does not meet the criteria of either of the above.

Whether the “number of employees” will also include affected contractors has yet to be determined.

Employment Allowance restricted to small businesses

The Employment Allowance, which gives many businesses a £3,000 reduction in their employer’s National Insurance (NI) bill, will be available to fewer employers from April 2020.

From that time, it will be limited to employers whose annual employer’s NI bill was under £100,000 in the previous tax year.

Annual Investment Allowance (AIA) increased

At the moment, businesses can claim tax relief on the cost of qualifying capital assets up to a limit of £200,000 a year.

From 1st January 2019 to 31st December 2020 that allowance will be increased to £1 million a year.

Digital services tax for large businesses only

From April 2020, a new 2% digital service tax will be introduced on sales made by large, established digital services businesses.

There was speculation before the Budget that this new tax could directly impact small digital services businesses; however, it only applies to groups generating over £500 million a year globally from these services.

VAT threshold remains at £85,000

The UK’s VAT threshold (the level of annual VATable sales at which a business must register for VAT) will remain at £85,000 until April 2022.

In some ways this is good news, as it could have been reduced; however, in real terms it is a reduction in the threshold as inflation is rising.

No mention of Making Tax Digital (MTD)

There was no mention of MTD in either the speech or the full report, so we have to assume that the current plans are going ahead, with MTD for VAT due to be introduced in April 2019.

Business rates to be cut for small retail businesses

Business rate bills will be cut by one-third for retail properties with a rateable value below £51,000, for two years from April 2019. The government says this will benefit 90% of retail properties.

Not much good news for small businesses!

Although there are promises of more support available to small businesses, such as a new Small Business Leadership Programme and a pilot in Greater Manchester to test what government training could help the self-employed, sadly this Budget does not contain a lot of good news for the smallest businesses.

The IR35 changes could introduce additional complications in building relationships with clients, while the Annual Investment Allowance increase is unlikely to be very helpful and the Employment Allowance continues for the smallest businesses as it has been.

Find out more about how small businesses will be affected by this year’s Budget in the FreeAgent podcast →

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