Tax allowance for working from home

fuzzball172

My wife and I have formed a partnership for our business. We both work from a dedicated office in our home. What is allowed on our self assessment in regards to heat, light, electricity, internet (we are a web based company) etc as we both work from the home office.

I just wanted a second opinion from you guys as you all seem very knowledgeable.

Thanks
Lee

fengirl_2

You will include in your accounts the proportion of household running costs in proportion to the number of rooms used over the total number of rooms in the house. So, if you have 3 beds and 2 receps and use one for an office, then you will include one fifth. Kitchens and bathrooms are not counted. Internet and phone (if not a dedicated line), you would include a reasonable proportion - there are no other guidelines - HMRC will accept anything reasonable. If you are a web based business, then I would expect a larger proportion of these expenses to be business.

Steve_xx

fengirl wrote: »

You will include in your accounts the proportion of household running costs in proportion to the number of rooms used over the total number of rooms in the house. So, if you have 3 beds and 2 receps and use one for an office, then you will include one fifth. Kitchens and bathrooms are not counted. Internet and phone (if not a dedicated line), you would include a reasonable proportion - there are no other guidelines - HMRC will accept anything reasonable. If you are a web based business, then I would expect a larger proportion of these expenses to be business.

My friend claims for a proportion of his household runnning costs as he is self-employed. Recently he asked his accountant if he could he claim a proportion of the cost of his replacement windows and she advised him that he probably couldn't. Also, she mentioned that if he came to sell the property, although it's his prime residence, that he would be liable to a charge on any profit. She said that this capital gain tax charge would be proportional somehow to the fraction of the amount of relief he had claimed.

Have you heard of this before? As a result he is now considering not claiming any further relief against the household running costs.

fengirl_2

Things like replacement windows are taking the allowance a bit far. The idea is that you include the additional cost of using your home for business - HMRC would argue that you have replaced your windows for the general benefit to your home, not purely because you work from there.

It is ture that if you turn part of your home over to anything which does not relate to your main residence, there is a potential CGT liability, but in 26 yrs I never saw such a charge in reality. BY using one room in the house for a relatively short amount of time, you are very very unlikely ever to cause a CGT liability. You also have to bear in mind the cost of renting premises elsewhere if you did not use yoour home - you only get tax relief on the rent of an office, the rest of the cost has to be bourne by the business.

Merely not claiming tax relief for the use of a room at home does not prevnet a CGT charge - the fact that you have turned over part of your home to some other use means that its not yur main residence. But as I said, highly unlikely to ever happen.

Steve_xx

Thanks for your reply on this one.

I was wondering how this charge be brought about because if he did sell the house then he would just not do anything regarding taxation due to it being his prime residence? In other words how would the tax people even know that he'd sold it?

fengirl_2

I think they would notice that his address had changed.

Steve_xx

Oh right, so theres no notification to the tax people other than that then.

fengirl_2

HMRC can ask for notifications of sale from the Land Registry.

fuzzball172

So I'm ok with 10% then... thats cool, I'm happy with 10% seems reasonable to me

Thanks for your answers

Steve_xx

jimmo wrote: »

I really fear that an awful lot of people don’t understand the basics of Self Assessment but it does “exactly what it says on the tin”. You are responsible for determining your own tax liability and HMRC has a set time limit for checking each return. However, if in 4,5 or 6 years’ time HMRC check your return and find something wrong that will give them all sorts of opportunities to re-open earlier years.

You raised some interesting points in your response, one of which I would like to probe you further on. Is it not the case that after a period of six years that monies owing to HMRC become statute barred?

MrCarrot

As usual the rules are very confusing. I think from 2008-2009 you can claim a flat rate payment of £3 a week for working at home, which won't really be questioned.

HMRC has recently clarified their position on council tax and mortgage interest payments. You can also offset a portion of these against working at home - without fear of capital gains tax (accountants always used to advise against this, since there was no formal clarification from HMRC that capital gains tax wouldn't come into effect).

Also, at one time I think they were against you claiming for working at home if you had an office nearby that you could use. From the examples I've read on the HMRC website you can now "volunteer" to work from home and claim the benefits, even if you have an office nearby.

However, from what I understand, the above applys to SELF EMPLOYED individuals. If you trade as a limited company, technically you are considered employed by the company and not self employed. I have read that the above rules don't nesseccarily apply to directors of limited companies, although I would appreciate clarification on this myself.

If all else fails, call the HMRC help line and they will give you an honest answer. Don't tell them your name if you don't want, and if they ask say it's Alun Sugar and hang up :beer:

With regards to claiming costs of news windows, I would advise strongly against this. Fitting new windows is going to be of benefit to the house really, not the business. I would imagine if you use one room for business, the most you could ever expect to claim was the cost of one window (assuming the room only has one window). However I think realistically if the windows increase the value of your home, you could be subject to capital gains tax.

All of the above is just what I have researched myself - you should clarify this with your accountant or HMRC directly.

What Jimmo said above is right though - self assesment is basically "do what you think is right at the time" and then "suffer the consequences later if we think you've done wrong."