Sole Trader expenses question: use of home as office
Discussion
Wonder if anyone could give me a little help with calculating sole trader expenses? I'm trying to work out how to apportion part-time use of the house as an office. I know I can claim a portion of the heat/light/mortgage interest costs but there seems to be various ways of calculating this . Basically I use 1 bedroom as an office for 2-3 days a week. What's the simplest way of claiming this?
Also looking for simplest way to calculate mobile and fixed line/broadband expenses. All are used for both work and play so I guess these need to be apportioned too.
Thanks in advance
Also looking for simplest way to calculate mobile and fixed line/broadband expenses. All are used for both work and play so I guess these need to be apportioned too.
Thanks in advance
Ignore Dazco. he knows not of what he speaks.
HMRC are happy for sole traders to make a claim for Use of Home as Office. They provide guidlines for how to calculate this. Essentially they say -
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
Calculate how many liveable rooms there are in the house (include living rooms, dining rooms, kitchens and bedrooms. Ignore hallways, loos, bathrooms, garages utility rooms, outhouses and sheds).
For most people that usually workd out at 4 to 6.
If (say) 6, divide the domestic costs by 1/6. You can claim this figure as your "Use of Home as Office".
Dazco is thinking of Capital Gains Tax. You have nothing to worry about at all on this score if you are just performing a calculation for the Use of Home as Office claim.
You only need to worry about Capital Gains Tax if you physically convert a room (say a garage) into a dedicated office. In other words, change the nature of that part of the house irrevocably from a domestic use to a commercial use. If you make changes to that extent, you could very well have Business Rates and planning problems as well.
But merely using a kitchen or bedroom to do some admin work in - you won't have a problem.
HMRC are happy for sole traders to make a claim for Use of Home as Office. They provide guidlines for how to calculate this. Essentially they say -
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
Calculate how many liveable rooms there are in the house (include living rooms, dining rooms, kitchens and bedrooms. Ignore hallways, loos, bathrooms, garages utility rooms, outhouses and sheds).
For most people that usually workd out at 4 to 6.
If (say) 6, divide the domestic costs by 1/6. You can claim this figure as your "Use of Home as Office".
Dazco is thinking of Capital Gains Tax. You have nothing to worry about at all on this score if you are just performing a calculation for the Use of Home as Office claim.
You only need to worry about Capital Gains Tax if you physically convert a room (say a garage) into a dedicated office. In other words, change the nature of that part of the house irrevocably from a domestic use to a commercial use. If you make changes to that extent, you could very well have Business Rates and planning problems as well.
But merely using a kitchen or bedroom to do some admin work in - you won't have a problem.
Edited by Eric Mc on Sunday 22 January 22:25
Eric Mc said:
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
Calculate how many liveable rooms there are in the house (include living rooms, dining rooms, kitchens and bedrooms. Ignore hallways, loos, bathrooms, garages utility rooms, outhouses and sheds).
For most people that usually workd out at 4 to 6.
If (say) 6, divide the domestic costs by 1/6. You can claim this figure as your "Use of Home as Office".
Thanks Eric. So if I add up all the bills for the past year and divide by number of rooms could I then simply divide this figure again by 12 and enter it in Quickbooks as a monthly expense? Or does it just get used at the time of completing a self assessment?Calculate how many liveable rooms there are in the house (include living rooms, dining rooms, kitchens and bedrooms. Ignore hallways, loos, bathrooms, garages utility rooms, outhouses and sheds).
For most people that usually workd out at 4 to 6.
If (say) 6, divide the domestic costs by 1/6. You can claim this figure as your "Use of Home as Office".
Eric Mc said:
Ignore Dazco. he knows not of what he speaks.
HMRC are happy for sole traders to make a claim for Use of Home as Office. They provide guidlines for how to calculate this. Essentially they say -
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
I read something on the HMRC website just the other day that said countil tax wasn't an allowed cost as you'd be paying it anyway.HMRC are happy for sole traders to make a claim for Use of Home as Office. They provide guidlines for how to calculate this. Essentially they say -
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
Rent was an allowed cost, which would make renting much better for the sole trader!
jon- said:
Eric Mc said:
Ignore Dazco. he knows not of what he speaks.
HMRC are happy for sole traders to make a claim for Use of Home as Office. They provide guidlines for how to calculate this. Essentially they say -
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
I read something on the HMRC website just the other day that said countil tax wasn't an allowed cost as you'd be paying it anyway.HMRC are happy for sole traders to make a claim for Use of Home as Office. They provide guidlines for how to calculate this. Essentially they say -
Add together all your domestic costs (light, heat, Council Tax, water charges, morgtage intetrest).
Rent was an allowed cost, which would make renting much better for the sole trader!
Bikerjon said:
Thanks Eric. So if I add up all the bills for the past year and divide by number of rooms could I then simply divide this figure again by 12 and enter it in Quickbooks as a monthly expense? Or does it just get used at the time of completing a self assessment?
Doesn't really matter how you do it, as long as the total for the year ends up in the Profit and Loss account for the year.
It's a reimbursment.
It does need to be declared (on the Form P11D and on the director's self assessment tax return) but no tax will be chargeable on the director provided the cost is a pure reimbursment i.e. there is no "profit" or "gain" received by the individual.
The 45p/25p per mile Mileage Claim is outside of the P11D declaration system.
It does need to be declared (on the Form P11D and on the director's self assessment tax return) but no tax will be chargeable on the director provided the cost is a pure reimbursment i.e. there is no "profit" or "gain" received by the individual.
The 45p/25p per mile Mileage Claim is outside of the P11D declaration system.
Section N of the P11D is the best place to enter that sort of information.
The director needs to enter the same data in the employment pages of his self assessment tax return covering the same tax year. He also needs to tick the "Expenses" box in that section of the return - otherwise HMRC try to tax the director on thes "Expense Claim Income" by adjusting his coding.
One of the big problems with the UK tax system is the discrepancies in timing the PAYE and Self Assessment system.
For (say) 2010/11, the P11D had to be with HMRC by 6 July 2011. HMRC would use the data on the P11D to tax the director on Benefits in Kind as disclosed on the P11D. This would include reimbursed expenses.
The SA return for 2010/11 has a filing deadline over 6 months later. It is only with the filing of the SA return that the director can inform HMRC that the expenses disclosed on the P11D should not be taxed as they were really reimbursed expenses. So there is often a six month time lag between the declaration of the expense income on the P11D and the claim of the expense on the SA return.
Obviously, if directors could be persuaded to submit their SA returns closer to July rather than waiting until the following January, then there would be less confusion at HMRC.
The director needs to enter the same data in the employment pages of his self assessment tax return covering the same tax year. He also needs to tick the "Expenses" box in that section of the return - otherwise HMRC try to tax the director on thes "Expense Claim Income" by adjusting his coding.
One of the big problems with the UK tax system is the discrepancies in timing the PAYE and Self Assessment system.
For (say) 2010/11, the P11D had to be with HMRC by 6 July 2011. HMRC would use the data on the P11D to tax the director on Benefits in Kind as disclosed on the P11D. This would include reimbursed expenses.
The SA return for 2010/11 has a filing deadline over 6 months later. It is only with the filing of the SA return that the director can inform HMRC that the expenses disclosed on the P11D should not be taxed as they were really reimbursed expenses. So there is often a six month time lag between the declaration of the expense income on the P11D and the claim of the expense on the SA return.
Obviously, if directors could be persuaded to submit their SA returns closer to July rather than waiting until the following January, then there would be less confusion at HMRC.
sumo69 said:
HMRC seem fairly relaxed about what charge is entered so long as it can be seen as "reasonable" - I have a number of clients claiming circa £3-4k per year with an annual inflationary increase without any queries whatsoever.
That strikes me as an immense amount!HMRC gave us (ltd co) a £300 a year expenses dispensation.
Eric Mc said:
Section N of the P11D is the best place to enter that sort of information.
The director needs to enter the same data in the employment pages of his self assessment tax return covering the same tax year. He also needs to tick the "Expenses" box in that section of the return - otherwise HMRC try to tax the director on thes "Expense Claim Income" by adjusting his coding.
One of the big problems with the UK tax system is the discrepancies in timing the PAYE and Self Assessment system.
For (say) 2010/11, the P11D had to be with HMRC by 6 July 2011. HMRC would use the data on the P11D to tax the director on Benefits in Kind as disclosed on the P11D. This would include reimbursed expenses.
The SA return for 2010/11 has a filing deadline over 6 months later. It is only with the filing of the SA return that the director can inform HMRC that the expenses disclosed on the P11D should not be taxed as they were really reimbursed expenses. So there is often a six month time lag between the declaration of the expense income on the P11D and the claim of the expense on the SA return.
Obviously, if directors could be persuaded to submit their SA returns closer to July rather than waiting until the following January, then there would be less confusion at HMRC.
Can you not avoid all this by filing a P11dX - dispensation for expenses and BIK?The director needs to enter the same data in the employment pages of his self assessment tax return covering the same tax year. He also needs to tick the "Expenses" box in that section of the return - otherwise HMRC try to tax the director on thes "Expense Claim Income" by adjusting his coding.
One of the big problems with the UK tax system is the discrepancies in timing the PAYE and Self Assessment system.
For (say) 2010/11, the P11D had to be with HMRC by 6 July 2011. HMRC would use the data on the P11D to tax the director on Benefits in Kind as disclosed on the P11D. This would include reimbursed expenses.
The SA return for 2010/11 has a filing deadline over 6 months later. It is only with the filing of the SA return that the director can inform HMRC that the expenses disclosed on the P11D should not be taxed as they were really reimbursed expenses. So there is often a six month time lag between the declaration of the expense income on the P11D and the claim of the expense on the SA return.
Obviously, if directors could be persuaded to submit their SA returns closer to July rather than waiting until the following January, then there would be less confusion at HMRC.
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.
My claim is around £2000, but that's one room of a 7 room rented house so includes rent. I've even left out water as it didn't seem reasonable (though electricity and gas did.)I could happily rent a smaller (cheaper) house if I didn't need the space for the business so I hope I wouldn't have any trouble from HMRC if I get investigated!
Eric Mc said:
Ignore Dazco. he knows not of what he speaks.
Bit bloody rude, aren't you?Firstly, I informed the OP it was a story I heard.
Secondly, you then posted this in the same post...
Eric Mc said:
Dazco is thinking of Capital Gains Tax. You have nothing to worry about at all on this score if you are just performing a calculation for the Use of Home as Office claim.
You only need to worry about Capital Gains Tax if you physically convert a room (say a garage) into a dedicated office. In other words, change the nature of that part of the house irrevocably from a domestic use to a commercial use. If you make changes to that extent, you could very well have Business Rates and planning problems as well.
But merely using a kitchen or bedroom to do some admin work in - you won't have a problem.
Basically saying that it is totally possible for the scenario I relayed, to happen.You only need to worry about Capital Gains Tax if you physically convert a room (say a garage) into a dedicated office. In other words, change the nature of that part of the house irrevocably from a domestic use to a commercial use. If you make changes to that extent, you could very well have Business Rates and planning problems as well.
But merely using a kitchen or bedroom to do some admin work in - you won't have a problem.
Edited by Eric Mc on Sunday 22 January 22:25
Are there any pitfalls to be aware of?
Yes.
Above I mentioned that I don’t use either my office or my living-room 100% for business. That’s very important.
Normally you don’t pay capital gains tax when you sell your main home. It’s exempt.
But if you use any part of your home just for business, then the exemption covering the main home will not apply to that part of your home - and you could have to pay capital gains tax.
If, instead of using my office as a music-room as well, I just used it for business, then if and when my husband and I come to sell our home, I would at the very least have to do a capital gains tax calculation to see if I had any tax to pay on that room.
So if you run your business from home, try not to use any room just for business - and try and be able to prove that if you can.
For example, if HM Revenue came knocking at my front door, I could justify that the office is a music-room too by showing them my piano set up in there.
From here http://www.freeagent.com/central/tax-benefits-for-...
Yes.
Above I mentioned that I don’t use either my office or my living-room 100% for business. That’s very important.
Normally you don’t pay capital gains tax when you sell your main home. It’s exempt.
But if you use any part of your home just for business, then the exemption covering the main home will not apply to that part of your home - and you could have to pay capital gains tax.
If, instead of using my office as a music-room as well, I just used it for business, then if and when my husband and I come to sell our home, I would at the very least have to do a capital gains tax calculation to see if I had any tax to pay on that room.
So if you run your business from home, try not to use any room just for business - and try and be able to prove that if you can.
For example, if HM Revenue came knocking at my front door, I could justify that the office is a music-room too by showing them my piano set up in there.
From here http://www.freeagent.com/central/tax-benefits-for-...
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