Self-employed people of MSE: How much self assessment expense did you claim last year

Pennywise

robinh00d wrote: »

This thread is specially applied to self-employed who work from home, and would like to get a decent claim on self assessment expense.

HMRC has never been willing to provide clear information about claiming self assessment expenses. They always tried to keep this in the 'grey area'. Why? Because HMRC would be in a better position when the tax payer is not sure how much claim is too much.

Just search this forum for this topic, and you will find people warning each other about not claiming too much, or the taxman will knock your door soon sniffing around.

In fact, up to 2008, HMRC did not officially accept claiming fixed and running expenses for people who work from home (sorry for the weird url, new users cannot post links):

http:// bbc.in / tu4rqs

At that time, they published these examples as a guideline:

http:// bit . ly / cdou07

If you go through all the examples, you will see even the highest claim case, the 'Gordon' case, is not a realistic one. In the Gordon example, the architect's working room proportion for for council tax, mortgage interest and insurance is only £600 per year. If Gordon's working room only covers 10% of his whole house, this means his total expense of council tax, mortgage interest and insurance costs are only £6,000 per year. This figure is a joke in this country. On the other hand, if we stretch the whole council tax, mortgage interest and insurance annual expense to a more real figure of £12,000, this would mean Gordon has a house of 20 rooms, and he works in one of them.

Both of the above case in the HMRC example are far away from being realistic, and they have clearly been design to be of their benefit.

I am writing this to ask the other self-employed who work from home, and have files self assessment tax returns in previous years, to publish the highest expenses they have claimed.

Knowing these figures will give other new self-employed a higher confidence to go ahead and try a higher claim for this year.

Please contribute!

It doesn't mean Gordon's costs are "only" £6k, but I'd also argue that it is quite feasible that his costs could be "only" £6k anyway, especially if he bought more than 10 years ago and hasn't constantly re-mortgaged since!

You're ignoring the size of his rooms and the amount of time he spends working in his "office" as opposed to "living" in the rest of the house. If, for example, his "office" is the smallest room in the house, you wouldn't divide the total number of rooms, you'd have to also factor in size. It could be a tenth of the total house, yet be one room out of 5 if the sizes work it that way.

There are also differences in the way it's calculated based on whether the person is an employee or director as opposed to being a sole trader or partner, and also differences whether the house is rented or mortgaged. For employees and directors, the eligibility test is "wholly, exclusively AND NECESSARILY" so you have to prove it's necessary to have a dedicated office room and prove the necessity of it's size etc - very difficult to prove!!

Don't forget that the more you claim for a dedicated room for business, the more chance you have of losing some of your private residence relief - this doesn't apply for "dual use" rooms (i.e. spare wardrobe or bed) and even where it does apply, it's probably of no impact if the percentages of business use are kept small (to stay within the annual CGT exemption).

At the end of the day, the taxpayer themselves has to justify the claim they wish to make. If you put a case together for a specific amount, and back it up with sound logical reasoning based upon the laws, then you should be able to defend yourself if challenged. However, if you try to claim £50 per week "because Fred down the pub claims that", you're going to get hit badly in case of enquiry or investigation.

There is no "one size fits all" - I've won claims for thousands of pounds of claim per year, and lost claims for a fiver a week. There are no short cuts. You have to do the sums and prepare your argument to support your claim.

Just do your own research, make sure you know the different rules between employment/self employment and between rented and mortgaged, and keep a solid justification claim for whatever you're claiming, then you should be OK.

ceeforcat

HappyMJ wrote: »

You can claim whatever is reasonable. I have a 3 bedroom house. If I didn't have a business running from home I would have a 2 bedroom house so I claim the difference in rent between a 2 bed and a 3 bed. £30 a week. I then claim 1/6th of the gas and electricity which is my estimate of the business proportion of the bill (based on time weekly it's 28 hours business and 140 hours personal). That's only about £2 per week. Then I claim half of the phone, mobile and broadband. Weekly that's about £4. So my total claim is £36 per week or £1,872 per year.

I agree that this claim can only increase the likelihood of an enquiry.

The rent calculation is, how shall I put it, unusual. Your phone, mobile and broadband should not be included in your use of home calculation at all!

HappyMJ

robinh00d wrote: »

Given that your £36/week rate is kind of high comparing to the others, have you ever been contacted by HMRC to explain or justify this? Has the taxman ever visited your property?

There is no entry in the accounts submitted to the HMRC detailing the justification for £36 a week. My accounts are simple it's income less expenses equals profit. It's 3 lines. The taxman has no permission to visit my property.

ceeforcat wrote: »

I agree that this claim can only increase the likelihood of an enquiry.

The rent calculation is, how shall I put it, unusual. Your phone, mobile and broadband should not be included in your use of home calculation at all!

The rent calculation has been approved not by HMRC but by the council for housing benefit purposes. I pay £525 in rent LHA is £395 and the business pays £130 per month. The council are the only ones who actually look at the full detail of my accounts and question every entry. I know they are different and I've gone over this before on here. I don't make enough profit to pay tax and due to very low profits I claim housing benefits so I would have thought that council would question every deduction as they are paying out more than the HMRC are potentially losing from an expense which may not be valid. My accounts to the HMRC are a 3 line affair. Income less expenses equals profit. I don't go into details as to how the amount has been calculated. The details are just for me.

ceeforcat

The taxman has no permission to visit my property.

He does not need permission.

http://www.startups.co.uk/a-visit-from-the-tax-man.html

Pennywise

HappyMJ wrote: »

I don't go into details as to how the amount has been calculated. The details are just for me.

But HMRC have the power to ask for a more detailed list and have the power to ask whatever questions they like about how you arrived at the figures you've used, and to challenge any of those figures.

Nor will HMRC be remotely interested in what you've agreed with anyone else or any other agency. Your LHA will be working under one set of rules and HMRC work under a different set of rules. There've been plenty of instances where I've seen a "profit" figure that was different for tax purposes, different again for benefits purposes, and even different for different types of benefit.

HappyMJ

ceeforcat wrote: »

The taxman has no permission to visit my property.

He does not need permission.

http://www.startups.co.uk/a-visit-from-the-tax-man.html

He does need permission to enter my property. He needs my agreement and I am not giving it.

ceeforcat

HappyMJ wrote: »

He does need permission to enter my property. He needs my agreement and I am not giving it.

I guess that we will just agree to differ in our interpretation of the following from HMRC manuals.

The business premises definition allows us the right to enter any home, see CH25220, used in connection with the carrying on of a business.


CH25220
There are several ways in which a person’s home can fall within the definition of business premises:...

The business may be run from other business premises but the proprietor keeps their business records at home.
The business may be run from other business premises, but the proprietor occasionally writes up some records at home and keeps their business records at home.
Any business that includes in its accounts expenses for ‘use of home as office’ should be using the proprietor’s home at least partly as business premises.

real1314

HappyMJ wrote: »

The rent calculation has been approved not by HMRC but by the council for housing benefit purposes. I pay £525 in rent LHA is £395 and the business pays £130 per month.

That £395 is just the council figure for a 2 bed property, assuming you are assessed as needing 2 beds. It does not relate to the amount of rent for YOUR property.

The fact that your rent is £130 pcm higher does not make it all a result of the extra room.
Unless you can show that an identical property bar that it has only 2 bedrooms, would be rentable at £395, your claim is incorrect.

:cool:

fenwick458

I claim £3 a week.

HappyMJ

ceeforcat wrote: »

I guess that we will just agree to differ in our interpretation of the following from HMRC manuals.

The business premises definition allows us the right to enter any home, see CH25220, used in connection with the carrying on of a business.


CH25220
There are several ways in which a person’s home can fall within the definition of business premises:...

The business may be run from other business premises but the proprietor keeps their business records at home.
The business may be run from other business premises, but the proprietor occasionally writes up some records at home and keeps their business records at home.
Any business that includes in its accounts expenses for ‘use of home as office’ should be using the proprietor’s home at least partly as business premises.

They have the right to ask and I have the right to refuse entry. http://www.hmrc.gov.uk/manuals/chmanual/CH25650.htm
Refusal of entry

The person whose tax position you are checking or occupier of the premises you wish to inspect has the right to refuse you entry. It cannot be overridden, so a person retains the right to refuse entry to their property even when an officer has a right to enter and inspect with tribunal approval. You should try to establish why you are being refused entry and if possible agree a date and time for a return visit. If this is not possible, you should withdraw and try to arrange another visit at a later time.
You will need to decide the most effective and appropriate course of action with your team leader, manager or authorising officer. This may be to ask the tribunal to approve the inspection, see CH25540. Any reasons you are given for not letting you onto the premises will need to be put before the tribunal.
See CH25700 where you are refused entry and the inspection has been approved by the tribunal.

real1314 wrote: »

That £395 is just the council figure for a 2 bed property, assuming you are assessed as needing 2 beds. It does not relate to the amount of rent for YOUR property.

The fact that your rent is £130 pcm higher does not make it all a result of the extra room.
Unless you can show that an identical property bar that it has only 2 bedrooms, would be rentable at £395, your claim is incorrect.

:cool:

So how much should I claim?