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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Other expenses: home: working from home: service companies

Sections 336 ITEPA 2003

It may occasionally be argued that a service company must have a fixed place of business, from which the administration is carried out and where the business books are kept, and that the director’s home serves these functions. Such arguments may draw on the Trading Income case of Horton v Young (47TC60) as authority. These arguments were dismissed as irrelevant, for employment income purposes, in Miners v Atkinson (see 68TC at page 640F).

It will usually be possible to demonstrate that the work that the director or employee carries on at home is not the substantive duties of the employment, see EIM32780. A director or employee may do some paperwork at home while the duties from which the service company earns its income are carried out at the client’s premises.

You should only accept that substantive duties are carried out at home where the company has a trade or business that goes beyond servicing individual client contracts and where that additional trade or business is serviced from home. For example a computer consultant may service individual client contracts that involve installing software but may also design, develop and market software from home as part of the company’s business. That additional activity may be part of the substantive duties of the employment.

In many cases the contract between the service company and the client will specify that the duties of the director or employee in relation to that contract are to be carried out at the client’s premises. Often the contract will specify fixed working hours at those premises. There may also be a ban on taking work away from the site, for security or other reasons. In these cases it is unlikely that the director will satisfy the conditions set out in EIM32760. You should only accept that there is an objective requirement to work at home when the client does not provide premises, there is no other location at which the work could possibly be done, and the property has been specially adapted to make it suitable.

Where a case is selected for enquiry you should obtain as much information as you can about the director or employee’s work pattern. This should include copies of contracts between the service company and the client, a copy of any contract of employment with the service company and a copy of the service company accounts.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)