Sole Trader expenses question: use of home as office

[Eric Mc]

The basic message is to make sure no one room is totally converted to sole business use. As long as the room can be used for normal domestic use as well, CGT will never be an issue.

My "office" is actually a spare bedroom - it even has a bed in it.

[jon-]

Eric Mc said:

My "office" is actually a spare bedroom - it even has a bed in it.

Does that mean you just claim something like 95% of the allowance, allowing for someone to say in that room once a year?

[Eric Mc]

jon- said:

Eric Mc said:

My "office" is actually a spare bedroom - it even has a bed in it.

Does that mean you just claim something like 95% of the allowance, allowing for someone to say in that room once a year?

My accounting clients usually don't want to sleep-over - although they have been known to doze off when I am speaking to them.

I can't for the life of me think why.

[sumo69]

Eric Mc said:

£3 to £4K is rather large, in my opinion. Depending on the house, the most I have claimed is in the region of £1,000. Most claims are in the £500 to £700 range.

Eric

I have self-employed and ltd companies claiming these without query for a number of years - remember there is an argument that includes the likely cost of a small serviced office as well as other sundry home costs ie share of toilet and bathroom cleaning and consumables, same for the kitchen as well as covering office refreshments ie tea, coffee, juice etc.

I am not saying I am 100% correct and you are not, but surely the thought of increasing a tax deductible expense if reasonable and justifiable for your clients should be considered??

D

[sumo69]

Eric Mc said:

My accounting clients usually don't want to sleep-over - although they have been known to doze off when I am speaking to them.

I can't for the life of me think why.

I thought that was just me!!!

[Deva Link]

sumo69 said:

... remember there is an argument that includes the likely cost of a small serviced office as well as other sundry home costs ie share of toilet and bathroom cleaning and consumables, same for the kitchen as well as covering office refreshments ie tea, coffee, juice etc.

Have you ever had those arguments with a tax inspector? You can claim for anything you like until someone queries it.

[sumo69]

Deva Link said:

Have you ever had those arguments with a tax inspector? You can claim for anything you like until someone queries it.

No I haven't but the point I am making is valid - if it wasn't the basis for the sums my clients have claimed would have come under some level of HMRC scrutiny by now as the number of these used is well into 3 figures.

I had 1 client who wanted to claim £12k to which I cringed at but they wanted to "give it a go" after having the risks and costs of an enquiry explained and a confirmation addressed to me that this was in excess of the amount recommended by me. Guess what happened...an aspect enquiry into the self-employment part of the tax return! Strangely HMRC accepted £6k after 1 phone call following our "justification" letter was submitted with an offer to reduce this to £8k. Client was chuffed as he did better than I had recommended, but I still don't go to that level on anyone else.

D

[Eric Mc]

Interesting points. I would balk at anything over £1,000 to be honest - unless tehre were exceptional circumstances 5that warranted a higher "Use of Home as Office " charge.

When it gets to higher amounts, is there not the danger that HMRC might want the director to start showing Rental Income for a similar amount?

[Bikerjon]

Well I've totted up the annual bills for mortgage interest, water, gas+ elec, council tax and it comes to just over £9000 (and that's with our current low interest rates!) I can easily see how renters could go way beyond this!

So with 7 rooms that's just under £1300 to claim.

My broadband/landline is a package deal so I think a 50% claim would seem realistic (about £15 a month) Same again with mobile phone.

Sound reasonable?

[jon-]

Bikerjon said:

Well I've totted up the annual bills for mortgage interest, water, gas+ elec, council tax and it comes to just over £9000 (and that's with our current low interest rates!) I can easily see how renters could go way beyond this!

So with 7 rooms that's just under £1300 to claim.

My broadband/landline is a package deal so I think a 50% claim would seem realistic (about £15 a month) Same again with mobile phone.

Sound reasonable?

I can't find it now, but I'm sure I saw a HMRC piece saying you couldn't claim phone line rental and internet, as they would be in your home regardless.

[Eric Mc]

Not outlandish at all.

[Deva Link]

Bikerjon said:

Well I've totted up the annual bills for mortgage interest, water, gas+ elec, council tax and it comes to just over £9000 (and that's with our current low interest rates!) I can easily see how renters could go way beyond this!

So with 7 rooms that's just under £1300 to claim.

My broadband/landline is a package deal so I think a 50% claim would seem realistic (about £15 a month) Same again with mobile phone.

Sound reasonable?

The guidance says you can claim a portion of insurance too.

[jon-]

Eric (or anyone who can answer) - can garages be claimed as a room if its sole use ends up being for your sole tradership?

[Eric Mc]

Yes.

[jon-]

lambofan2 said:

But then you could have CGT to pay if you make a profit if you sell your house...so it may not be worth it.

Thanks, but I rent, so not a huge issue.

I've not actually claimed for it, but it's good to know to add weight to my argument if HMRC ever want to chat things through.

[Eric Mc]

lambofan2 said:

jon- said:

Eric (or anyone who can answer) - can garages be claimed as a room if its sole use ends up being for your sole tradership?

But then you could have CGT to pay if you make a profit if you sell your house...so it may not be worth it.

That is only an issue if you convert the garage into a dedicated business space. If it remains essentially a garage capable of storing the family car, then CGT will NOT arise.

People get very hung up about CGT when using a home from which to run their business. CGT only ever comes into play if serious conversion work is carried out i.e. -

converting a garage or a shed into a work related only workshop
converting a garage or a room in the house into a reception area, clinic, office space etc

Making use of an existing room in the house just to do some work related activity will NOT in itself create a CGT issue.

[Eric Mc]

Still not an issue if the building or room hasn't been seriously converted.

[dazco]

Eric Mc said:

Still not an issue if the building or room hasn't been seriously converted.

Restrictions to the relief
You might not get the full amount of relief if:
The garden or grounds, including the site of the house, are larger than 5,000 square metres (roughly the size of a football pitch).
You've used any part of your home exclusively for business purposes.
You’ve let out all or part of your home (or taken in more than one lodger at a time). But you may be entitled to Letting Relief instead - see the section 'Letting all or part of your home' below.
The main reason you bought it was to make a profit from a quick sale.
You don’t have to claim Private Residence Relief - it's given automatically - but you may have to show the amount of relief due on your Self Assessment tax return if you normally complete one.

From here

http://www.hmrc.gov.uk/cgt/property/sell-own-home....

[Eric Mc]

dazco said:

Eric Mc said:

Still not an issue if the building or room hasn't been seriously converted.

Restrictions to the relief
You might not get the full amount of relief if:
The garden or grounds, including the site of the house, are larger than 5,000 square metres (roughly the size of a football pitch).
You've used any part of your home exclusively for business purposes.
You’ve let out all or part of your home (or taken in more than one lodger at a time). But you may be entitled to Letting Relief instead - see the section 'Letting all or part of your home' below.
The main reason you bought it was to make a profit from a quick sale.
You don’t have to claim Private Residence Relief - it's given automatically - but you may have to show the amount of relief due on your Self Assessment tax return if you normally complete one.

From here

http://www.hmrc.gov.uk/cgt/property/sell-own-home....

All fine - but it is impossible for HMRC to prove that a room was used "exclusively" for business UNLESS the room was copnverted in such a way that it was not CAPABLE of being used EXCEPT for business purposes.

HMRC will NEVER expect a CGT charge on the use of a "NON-CONVERTED" bedroom, garage, living room etc.
This question was raised on the Money Box Live - Self Assessment special on Radio 4 yesterday and the following experts all said more or less what I'm saying - Jane Moore, Technical Manager at the Institute of Chartered Accountants in England and Wales, Leonie Kerswill, Tax Partner, PricewaterhouseCoopers and Chas Roy-Chowdhury, ACCA, Head of Taxation.

I've been preparing CGT returns in the UK for a quarter of a century and this has NEVER been challenged by HMRC in any return I've submitted for a householder who ran a business from home.

[thegreengoblet]

My accountant operates the rules in exactly the same way as Eric.

I charge my ltd company £125 per month - derived from the bills (gas, electric, water, council tax (rubbish disposal, etc), insurance (buildings not contents as my company has its own office insurance) etc, and mortgage interest divided by the number of rooms. The yearly amount goes on my personal tax form as rent income. Once all the allowances are taken off wear and tear etc, it basically results in a very minor profit that's subject to tax. £125 is a relatively small amount of rent for a company to pay on a monthly basis IMO.

Many years ago, I used to just take the money out as an expense reimbusement, but after a PAYE audit the officer told me that 1) he needed to see the justification for the amount, and 2) it needed to go on my tax return and not taken as a tax free reimbursement. Even so, as per the paragraph above, I effectively do get the business use of home charge as a tax free sum. It's just accounted for differently.