Self-Employed Income Tax

katiecoodle

Hello - I was just wondering whether anyone else out there might have done something similar to us in the past.
Part of my husband's income is from teaching privately at home. During the past year, we built a studio at home specifically for this purpose. The build cost was £7.5K. Are we able to count all of this or part of this as a business expense? IF we're allowed to include the entire amount, it will be more than his income from teaching - are we allowed to count the remainder as an expense against his other job (plastering)?
Thanks for reading & I hope I've made sense.
Kate.

MoneyMagician

katiecoodle wrote: »

Hello - I was just wondering whether anyone else out there might have done something similar to us in the past.
Part of my husband's income is from teaching privately at home. During the past year, we built a studio at home specifically for this purpose. The build cost was £7.5K. Are we able to count all of this or part of this as a business expense? IF we're allowed to include the entire amount, it will be more than his income from teaching - are we allowed to count the remainder as an expense against his other job (plastering)?
Thanks for reading & I hope I've made sense.
Kate.

Hi,

In short, yes. But you need to be careful about how you proceed to do this. I would recommend using the services of a good accountant.

The following are allowable expenses for tutoring

• % of heating
• % of lighting
• % of telephone
• % of motoring expenses (if you travel to your pupils homes)
• rent (if you rent premises)
• office furnishings - filing cabinets - photocopier - tables/chairs - PC
• Printer
• Postage
• Textbooks, paper, calculators, pens etc.
• Professional subscriptions
• Stationery
• Advertising
• Photocopying
• Accountancy fees
• Insurance

REMEMBER - items such as computers, building etc. are classed as capital expenditure However, be careful if you use a room in your house solely for tutoring. You are likely to be liable for capital gains tax if and when you sell your home. It is a good idea to put a futon, or sofa bed, into the room. That way you can legitimately claim that the room is used as a guest room, and not solely for tuition

I hope this helps you,

MoneyMagician

System

If you claim the full £7500 the studio then becomes an asset of your husbands business. If the business fails with debts then he will be asked to sell that asset to pay his creditors if he has no other funds available.

You need to take professional advice.

payless

sounds like a capital expense

kitty1801

Sorry to sound like a spoilsport, but if this is an extension to your house, then you can't claim it as a business expense as it is not solely for business use as if the business ceases, you will be 'better off' by the extension. You could claim a percentage of your bills - although I think there may have been a change to the rules on using a room in your house from 08/09 onwards. You should really check this out with a technical officer at an HMRC call centre. Try 0845 9000 444.

katiecoodle

"If the business fails with debts then he will be asked to sell that asset to pay his creditors if he has no other funds available."

Hello - to clarify: It is a drumming studio. It was purpose built in order for him to teach from it (I don't want a load of drumming in the house in the evenings!) and he does use it for private practising too - eg. rehearsals for gigs. He's never been in debt as a teacher & I'm struggling to think of how it ever could be? People pay upfront during the lessons. He's self-employed, not a ltd company or anything like that.

jimmo

Firstly, as mentioned by payless, the £7,500 you paid to have the studio built is “capital expenditure”. I am afraid that you cannot claim a deduction for that.
However, you can claim for the running expenses (heat, light etc). The problem then is how to determine the amounts you can claim and how all this will impact on the Capital Gains and other tax consequences if you sell the house in the future.
The most frequent issues on using part of your home for business use concern people, effectively doing the paperwork at home and doing the money generating work elsewhere. Also, nowadays, there are people who generate their income entirely from working on a computer.
In those cases the use of the home can vary from one who has turned a bedroom into an office exclusively for business use to another who does all his work on a laptop on the kitchen table.
You really don’t seem to fit that picture because you now have a studio within the fabric of the building that is your home.
I think you now have to consider whether you now live in a house, part of which is used for business purposes or whether you now live in a building which comprises of a dwelling house (the parts occupied by the family for general living) and a business premise (the studio).
Should you be paying Council Tax on the dwelling House and business rates on the business premises?
Is your home insurance company aware of the circumstances?
When he uses it “for private practising too - eg. rehearsals for gigs” I am afraid the taxman in me questions that. Clearly he is not using it as part of his teaching business but is that private use of a business premise? Or is it that he has another business as a professional drummer?
No answers here, I am afraid, but an indication of the sort of questions you are likely to face if HMRC enquire into his Returns.

katiecoodle

Thank you Jimmo - it all seems so RIDICULOUSLY complicated when he only gigs about 3 times a year for £50 a gig! ah well, I guess I'll pay the accountant again this year (every year I think "surely I can save my doing this myself")...
Thanks for your very informative & articulate replies everyone.