Home workers
Like a growing number of his future subjects, Prince Charles works from home. And this week he did more than most self-employed people are willing to do when he revealed his income and the tax he pays on it. But it wasn't long before journalists were scratching their heads over why an income of nearly £14mn from the Duchy of Cornwall attracted tax of just over £3 million - including VAT that was paid. That's about half what you would expect at the 40% that is charged on any income above £38,000.
The answer is very simple. The £14 million income of the Duchy of Cornwall is his turnover – his gross income. Before tax is worked out he can deduct his legitimate business expenses. Working that out though will be a bit of a nightmare. His house is where he lays his head and a place with an office where he works. Part of it will be to receive guests and dignitaries to do with his work as a Prince. Similarly some staff will be for Duchy business, others will be to press his trousers. But which trousers? Those exclusively for work or those he wears when he goes on a hike with Camilla?
Anyone who works at home faces these dilemmas. If you use one room as your office the Revenue will allow you to count a share of the cost of gas, electricity and water – but only if it is metered. You can also count a share of the mortgage interest or rent and, some say, the council tax. The share is worked out by counting the rooms in your house – excluding bathrooms and toilets (and the kitchen some people say; there is no clear guidance) – and then working out the share for the room you use. Best to use the room occasionally for something else or you can be stung with Capital Gains Tax on that room when you sell your home. Telephones and cars are easier. Measure the calls and the mileage over a month and see what proportion is business use and charge that fraction in future. Keep an eye on it in case things change. Anything that is to do with your business – from a bus fare to a magazine, from a vase of flowers for when clients visit to a bus fare, from a magazine to a piece of software – can all be counted against your income before you work out the tax.
And remember, if you do any self-employment at all you have to register as self-employed – or face a £100 fine – and if you are under pension age pay Class 2 National Insurance contributions of £x.yz a week.
Charles pays tax on his Duchy income voluntarily. Which probably makes life easier when he has to argue with the Revenue over what is or is not an allowable expense. His Mum, exempt by law from income tax, has also paid it voluntarily since 1993. Presumably she makes the cheque out to My Majesty's Revenue and Customs.
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