Claiming home costs, have I got this right?

[jon-]

I think I've got this right, but I thought it would be worth checking (and it might be useful for others

I live in a rented house, which has 6 rooms (not including toilets and corridors, but including the kitchen)

I have one room dedicated to a home office which is used approximately 90% as an office, 10% as a clothes storage room.

Am I right in thinking I can claim 90% of 1/6th of the house costs, which would include rent, bills, council tax, insurance etc?

One slight grey area is because I had a PAYE job in 08-09 tax year I couldn't have been in the house all day. Do I need to claim a time percentage on the total? While I wasn't in the office 24/7, I did use it daily and having it setup as an office stopped anyone else living in the house, which obviously cost me.

Thanks

[Eric Mc]

Are you employed, self employed or operating a limited company?

[Engineer1]

I would be interested in the answer to this assuming self employed, also I was told it was habitable rooms so bathrooms and kitchens weren't counted, is this correct?

[jon-]

Eric Mc said:

Are you employed, self employed or operating a limited company?

In this case, self employed.

[Eric Mc]

Engineer1 said:

I would be interested in the answer to this assuming self employed, also I was told it was habitable rooms so bathrooms and kitchens weren't counted, is this correct?

The basic rule is based on habitable rooms, so hallways, loos, bathrooms, garages and utility rooms are excluded. Dining rooms, living rooms, kitchens and bedrooms all count as being "habitable rooms".

[Funk]

Sorry to piggyback on this, but I work from home as an employee. I don't have a dedicated office but there are running costs involved with working from home such as heating, lighting, electricity for things like electrical equipment. Am I able to offset any of the costs?

[Eric Mc]

Funk said:

Sorry to piggyback on this, but I work from home as an employee. I don't have a dedicated office but there are running costs involved with working from home such as heating, lighting, electricity for things like electrical equipment. Am I able to offset any of the costs?

Are you obliged to work from home as a condition of your employment or is it an option?

[Funk]

Eric Mc said:

Funk said:

Sorry to piggyback on this, but I work from home as an employee. I don't have a dedicated office but there are running costs involved with working from home such as heating, lighting, electricity for things like electrical equipment. Am I able to offset any of the costs?

Are you obliged to work from home as a condition of your employment or is it an option?

Obliged. We used to have offices but they've been closed in a cost-saving exercise. Our HO is not somewhere I'd be able to work from (it's 2 hours away). We do have access to Regus managed office space, but it's for the Business Lounges, not 'pukka' offices. Useful for meeting the odd client to do a deal over coffee, but not even remotely somewhere that could be classed as 'my office'.

I'm classed as 'home-based travelling employee' on my job description, ie. I work from home but a lot of my day is spent out meeting customers at their offices.

Edited by Funk on Sunday 26th September 15:29

[Engineer1]

I have also been told that any room you use as your office make sure it has an obvious second use otherwise your home office becomes a place of business, and is liable for tax as a business.

[Funk]

Engineer1 said:

I have also been told that any room you use as your office make sure it has an obvious second use otherwise your home office becomes a place of business, and is liable for tax as a business.

This is what I was wondering as my desk/office space is in my lounge. I live on my own and have a 1-bed flat; I didn't see any point buying a 2-bed place to make one room an office only to spend most of my time in what would be the smallest room in the flat!

[Eric Mc]

Funk said:

Engineer1 said:

I have also been told that any room you use as your office make sure it has an obvious second use otherwise your home office becomes a place of business, and is liable for tax as a business.

This is what I was wondering as my desk/office space is in my lounge. I live on my own and have a 1-bed flat; I didn't see any point buying a 2-bed place to make one room an office only to spend most of my time in what would be the smallest room in the flat!

The rules are different depending on whether you are an employee or self-employed.

The difference between the two is not in how you apportion costs for working out the "Use of Home as Office" cost but whether you can make a claim against your tax liability in the first place.

If you are self-employed (or operating through a home based limited company), the costs are allowed if they are incurred "Wholly and Exclusively for the Purpose of the trade".
If you are an employee, the costs are allowed if they are incurred "Wholly, exclusively and NECESSARILLY in the performance of your duties".

I wouldn't worry too much about the impact on your home. Employees, on the whole, have no worries about local councils recategorising part of your house as a "business premises".
People running a genuine business from home are usually OK as long as they don't carry out major conevrsion work on the house or conduct a business which fundamentally alters the nature of the house or the area in which it is located.

[jon-]

Eric Mc said:

If you are self-employed (or operating through a home based limited company), the costs are allowed if they are incurred "Wholly and Exclusively for the Purpose of the trade".
If you are an employee, the costs are allowed if they are incurred "Wholly, exclusively and NECESSARILLY in the performance of your duties".

So, my 90% 1/6th rule makes sense, as if I didn't have a home office, in theory, I could down grade to a smaller house?

[Eric Mc]

HMRC recommend that you -

add up your utility bills, Council Tax, Water Charges and (to a limited degree)household repairs and decoration costs and interest on your mortgage

work out the number of HABITABLE rooms in the house (NOT included are halls, utility rooms, bathrooms, garages etc). Most houses have between 5 to 7 habitable rooms.

divide teh total houseold costs by 1/5 to 1/7 (whichever fraction is appropriate) to arrive at the claimable figure

HMRC do not expect that the claim for such costs would be much over £800 in any one year. For most people the amount is more like £500 to £600. If you want to claim more, there is nothing to stop you, but HMRC might be curious to know how you have arrived at your figure.

[jon-]

Eric Mc said:

HMRC recommend that you -

add up your utility bills, Council Tax, Water Charges and (to a limited degree)household repairs and decoration costs and interest on your mortgage

work out the number of HABITABLE rooms in the house (NOT included are halls, utility rooms, bathrooms, garages etc). Most houses have between 5 to 7 habitable rooms.

divide teh total houseold costs by 1/5 to 1/7 (whichever fraction is appropriate) to arrive at the claimable figure

HMRC do not expect that the claim for such costs would be much over £800 in any one year. For most people the amount is more like £500 to £600. If you want to claim more, there is nothing to stop you, but HMRC might be curious to know how you have arrived at your figure.

1/6th of my rent would be 1700 alone..!

[Eric Mc]

There is nothing to stop you making the claim you think is appropriate. Just be prepared to have all your arguments in place to justify your claim if and when HMRC ask questions.

[jon-]

Eric Mc said:

There is nothing to stop you making the claim you think is appropriate. Just be prepared to have all your arguments in place to justify your claim if and when HMRC ask questions.

I presume HMRC are reasonable? My justification would be I could downsize on rent rates to a flat if it wasn't for a home office and a garage full of tyres!

[Eric Mc]

jon- said:

Eric Mc said:

There is nothing to stop you making the claim you think is appropriate. Just be prepared to have all your arguments in place to justify your claim if and when HMRC ask questions.

I presume HMRC are reasonable? My justification would be I could downsize on rent rates to a flat if it wasn't for a home office and a garage full of tyres!

Don't presume ANYTHING about HMRC.

[jon-]

Eric Mc said:

jon- said:

Eric Mc said:

There is nothing to stop you making the claim you think is appropriate. Just be prepared to have all your arguments in place to justify your claim if and when HMRC ask questions.

I presume HMRC are reasonable? My justification would be I could downsize on rent rates to a flat if it wasn't for a home office and a garage full of tyres!

Don't presume ANYTHING about HMRC.

Cryptic

In your experience would you see HMRC accepting the above reasoning? Where there are no strict guidelines you've always promoted the "reasonable" calculations, ie don't take the piss.

[Eric Mc]

They don't "accept" anything these days. There is no "agreement" function in the way business profits are taxed under the self assessment system.

Instead, they MAY pick your self assessment return for "enquiry". The reason they chose to pick your return for enquiry may or may not be connected to your "Use of Home Claim". There may not even be a reason - as they can open an enquiry using their "random" selection process.

In my opinion, the figure you are chosing is high and increases the risk of an enquiry into your tax return. However, that does not mean that they WILL enquire.
At the end of the day, it is up to you to decide how much to claim and how much you feel you can cope with an enquiry into your tax affairs - if such an enquiry transpires.

Edited by Eric Mc on Sunday 26th September 20:05

[jon-]

As always, thanks Eric.