Allowable expenses for use of office at home (self employed)

debsleypig

I need to finalise the details of my husband's tax return (definitely employing an accountant next year!) and I need to sort out the allowable expenses for working from home and using one designated room as an office. This is the first year we are claiming for this, as he previously had a desk tucked away in the bedroom.

As far as I understand, I can claim the following:

Rent (we don't have a mortgage)
Council Tax
Electric
Phone
Broadband
Insurance

I have calculated it based on a percentage of time. There are 168 hours in the week, and have done it that my husband works for approximately 20% of that time. So, I am proposing to claim 20% for most of the above items, some are more, I will explain:

Rent: 20% of annual rent is £1,920
Council tax: 20% of annual council tax is £298
Electric: 20% of annual bill is £78 (this was not what we actually used as npower completely messed up our bill, but it is 20% of what we paid, want to keep it simple as possible!)
Mobile: I have done it as 50% of the bill as it is mostly used as a business phone, so that would be £211.11 for the tax year.
Broadband: Again I have done this as 50% as it is used probably half business, half personal, so that is £101.96
Home insurance: 20% of this is £27.60 (my husband has a lot of expensive equipment for his work being a photographer and web designer)

So, the total of that comes to £2636.67. This strikes me as being a little high and I don't want the tax man to come sniffing round (not that I have anything to hide, I just wouldn't want the stress of it). I did read somewhere that the tax man would generally expect you to claim around £600 or £800 in these sorts of expenses, but I can't see how this can be so. If you need to claim based on a reasonable proportion of how much of each thing is used for business purposes.

Am I going to be claiming too much?? Any advice greatly appreciated x

harryhound

Is there a future Capital Gains Tax (and business rates?) liability attached to converting a specific room to a commercial office?

debsleypig

harryhound wrote: »

Is there a future Capital Gains Tax (and business rates?) liability attached to converting a specific room to a commercial office?

I don't believe this would apply. It is not a commercial office, it is just a designated room that is an office. Not much converting going on, as we simply moved my daughter's bed into my son's room and moved the desk through to the vacant room.

pipscot

This seems extremely high to me. In a recent set of accounts I did for a self-employed person, we apportioned the "office" as a percentage of the floor area. The figure we claimed was approx £750. Most self-employed people do not do complex calculations each year - they simply use a "set figure" as a basis for their claim but it must be justifiable so you would have to show how you came up with your estimate if asked.

This is a link to some HMRC examples - http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm - you may find it helpful.

I had previously been advised (by HMRC) that it was not possible to include council tax in the calculation so I was interested to see that HMRC themselves are including it in one of their examples!

debsleypig

pipscot wrote: »

This seems extremely high to me. In a recent set of accounts I did for a self-employed person, we apportioned the "office" as a percentage of the floor area. The figure we claimed was approx £750. Most self-employed people do not do complex calculations each year - they simply use a "set figure" as a basis for their claim but it must be justifiable so you would have to show how you came up with your estimate if asked.

This is a link to some HMRC examples - http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm - you may find it helpful.

I had previously been advised (by HMRC) that it was not possible to include council tax in the calculation so I was interested to see that HMRC themselves are including it in one of their examples!

Thanks for this. Yes, I am concerned that it is high. The main thing I am confused over is the rent. As all the examples on that web page are for people that have a mortgage, and they are claiming mortgage interest rates. It says on a separate page about rent:

Part of the rent is an allowable expense when the home is rented and part is used solely for business purposes.

A sole trader cannot charge a separate rent to his or her own business. This is because individuals cannot rent property to themselves. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for business purposes.

So, if that last sentence is correct, then I should be able to claim a reasonable proportion of the rent we pay. The figure I did was based on the percentage of time it is used for, or it also equates to the percentage of the number of rooms in the property (20%). Is this not reasonable?

pipscot

debsleypig wrote: »

Thanks for this. Yes, I am concerned that it is high. The main thing I am confused over is the rent. As all the examples on that web page are for people that have a mortgage, and they are claiming mortgage interest rates. It says on a separate page about rent:

Part of the rent is an allowable expense when the home is rented and part is used solely for business purposes.

A sole trader cannot charge a separate rent to his or her own business. This is because individuals cannot rent property to themselves. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for business purposes.

So, if that last sentence is correct, then I should be able to claim a reasonable proportion of the rent we pay. The figure I did was based on the percentage of time it is used for, or it also equates to the percentage of the number of rooms in the property (20%). Is this not reasonable?

If you have 5 rooms in your house - then I suppose it does sound reasonable and agree that you'd have to use a proportion of your total rent.

You can always ring up HMRC themselves and ask them. You might have to wait in a queue for a while... but they are usually quite helpful to people filling in their own tax returns.

Please let me know how you get on if you do this - I'm starting to wonder if I am underestimating!!!

debsleypig

pipscot wrote: »

If you have 5 rooms in your house - then I suppose it does sound reasonable and agree that you'd have to use a proportion of your total rent.

You can always ring up HMRC themselves and ask them. You might have to wait in a queue for a while... but they are usually quite helpful to people filling in their own tax returns.

Please let me know how you get on if you do this - I'm starting to wonder if I am underestimating!!!

Thanks. Yes I think I just need to phone them as I don't want to get it hugely wrong. Will let you know.

property.advert

If you phone them, you may consider withholding your number and if requested for a name, simply have a made up one ready for them. You do not want to tip your hand.

taxing

debsleypig wrote: »

I need to finalise the details of my husband's tax return (definitely employing an accountant next year!) and I need to sort out the allowable expenses for working from home and using one designated room as an office. This is the first year we are claiming for this, as he previously had a desk tucked away in the bedroom.

As far as I understand, I can claim the following:

Rent (we don't have a mortgage)
Council Tax
Electric
Phone
Broadband
Insurance

I have calculated it based on a percentage of time. There are 168 hours in the week, and have done it that my husband works for approximately 20% of that time. So, I am proposing to claim 20% for most of the above items, some are more, I will explain:

Rent: 20% of annual rent is £1,920
Council tax: 20% of annual council tax is £298
Electric: 20% of annual bill is £78 (this was not what we actually used as npower completely messed up our bill, but it is 20% of what we paid, want to keep it simple as possible!)
Mobile: I have done it as 50% of the bill as it is mostly used as a business phone, so that would be £211.11 for the tax year.
Broadband: Again I have done this as 50% as it is used probably half business, half personal, so that is £101.96
Home insurance: 20% of this is £27.60 (my husband has a lot of expensive equipment for his work being a photographer and web designer)

So, the total of that comes to £2636.67. This strikes me as being a little high and I don't want the tax man to come sniffing round (not that I have anything to hide, I just wouldn't want the stress of it). I did read somewhere that the tax man would generally expect you to claim around £600 or £800 in these sorts of expenses, but I can't see how this can be so. If you need to claim based on a reasonable proportion of how much of each thing is used for business purposes.

Am I going to be claiming too much?? Any advice greatly appreciated x

Hi
First of all the broadband and the phone would be taken separate to the use of home as these are separate to accommodation costs.

For these, a percentage of private to business use for the cost if reasonable should be fine for a claimable tax deduction. You would claim these under admin expenses in the tax return analysis section.

For use of home as office (premises costs in the tax analysis), I am a bit confused as to how you get to 20%. You say 168 hours of which you husband works 20% of so you then go onto claim a full 20% of the annual costs of the house implying that your husband uses the WHOLE HOUSE for that 20% of his time?

Should it not be that he is using 1/5th of the house for 20% of the time so the claim would be 20% of 20% of the house bills? For example - 20% of your annual rent is £1920 but then only 1 room is used so 1/5th of that is £384.
Similarly 1/5th of council tax is £60 (1/5th of £298), and so on.

Incidentally, for capital gains tax, you should not be designating any one room for 100% business use as this loses the valuable Principal Private Residence tax exemption on that room for the period of 100% business use. Better to ensure the room is also available for family use when not being used by your husband. The family computer might be in there, or a telly, or a spare bed for guests etc etc...

Regards

debsleypig

taxing wrote: »

Hi
First of all the broadband and the phone would be taken separate to the use of home as these are separate to accommodation costs.

For these, a percentage of private to business use for the cost if reasonable should be fine for a claimable tax deduction. You would claim these under admin expenses in the tax return analysis section.

For use of home as office (premises costs in the tax analysis), I am a bit confused as to how you get to 20%. You say 168 hours of which you husband works 20% of so you then go onto claim a full 20% of the annual costs of the house implying that your husband uses the WHOLE HOUSE for that 20% of his time?

Should it not be that he is using 1/5th of the house for 20% of the time so the claim would be 20% of 20% of the house bills? For example - 20% of your annual rent is £1920 but then only 1 room is used so 1/5th of that is £384.
Similarly 1/5th of council tax is £60 (1/5th of £298), and so on.

Incidentally, for capital gains tax, you should not be designating any one room for 100% business use as this loses the valuable Principal Private Residence tax exemption on that room for the period of 100% business use. Better to ensure the room is also available for family use when not being used by your husband. The family computer might be in there, or a telly, or a spare bed for guests etc etc...

Regards

Thanks so much for this. That makes sense now. I was being a thicky bum bum!

property.advert

taxing wrote: »

.... The family computer might be in there, or a telly, or a spare bed for guests etc etc...

Regards

That was given as an excuse at university but I have yet to hear about a tax man going around to check whether Great Uncle Bulgaria's suitcase is still under the bed !