Expenses when working from home
Discussion
I work through my limited company of which I'm a director. For the last 3 months I've also been working from the family home half time.
The accountant is recommending I only claim a £4/week unreceipted working from home allowance instead of apportioning receipted things like power between business and private use. Stories of doom like becoming liable for capital gains tax or business rates on the family home. Is this advice accurate?
The accountant is recommending I only claim a £4/week unreceipted working from home allowance instead of apportioning receipted things like power between business and private use. Stories of doom like becoming liable for capital gains tax or business rates on the family home. Is this advice accurate?
I'm told to add up running costs for house, so rent/mortgage, bills, council tax (say 10k for ease). Then take a percentage of how much of the house is used, so spare room/office is say 20%. Then say how often that is used as an office vs. home life, so 8 hours a day office vs. 2 home is 80%.
Take 10k x 20% x 80% = £1600. Write that off.
Take 10k x 20% x 80% = £1600. Write that off.
HMRC offers conflicting advice. Sometimes you will see suggestions such as "£2 to £4 per week". That is extremely parsimonious and very unfair (not to say unrealistic).
Other HMRC advice says add up the domestic running costs of the house (light, heat, insurance, repairs, Council Tax, Water Charges - and even mortgage interest). Allocate one of the habitable rooms of the house as "the office".
Note, you do not have to have converted a room to an office or even use any specific room for work.
The theory is that at any given time you will only be operating out of one room - whether it's the kitchen, a bed room or a living room.
Once you have the annual cost of all these domestic costs, divide the total by the number of habitable rooms in the house. This should give you a figure for the cost of maintaining the office.
Habitable rooms are -
living rooms
attached conservatories
kitchen
dining room
bedrooms
It does NOT include bathrooms, utility rooms, garages, sheds, greenhouses, outhouses etc
Depending on the house, the number of habitable rooms usually works out between four to eight.
Obviously, this calculation works out a lot higher than £2 to £4 per week but I have used it as the basis for my "Use of Home as Office" calculations for around 20 years and it has never been queried - ever.
Other HMRC advice says add up the domestic running costs of the house (light, heat, insurance, repairs, Council Tax, Water Charges - and even mortgage interest). Allocate one of the habitable rooms of the house as "the office".
Note, you do not have to have converted a room to an office or even use any specific room for work.
The theory is that at any given time you will only be operating out of one room - whether it's the kitchen, a bed room or a living room.
Once you have the annual cost of all these domestic costs, divide the total by the number of habitable rooms in the house. This should give you a figure for the cost of maintaining the office.
Habitable rooms are -
living rooms
attached conservatories
kitchen
dining room
bedrooms
It does NOT include bathrooms, utility rooms, garages, sheds, greenhouses, outhouses etc
Depending on the house, the number of habitable rooms usually works out between four to eight.
Obviously, this calculation works out a lot higher than £2 to £4 per week but I have used it as the basis for my "Use of Home as Office" calculations for around 20 years and it has never been queried - ever.
Eric Mc said:
HMRC offers conflicting advice. Sometimes you will see suggestions such as "£2 to £4 per week". That is extremely parsimonious and very unfair (not to say unrealistic).
Other HMRC advice says add up the domestic running costs of the house (light, heat, insurance, repairs, Council Tax, Water Charges - and even mortgage interest). Allocate one of the habitable rooms of the house as "the office".
Note, you do not have to have converted a room to an office or even use any specific room for work.
The theory is that at any given time you will only be operating out of one room - whether it's the kitchen, a bed room or a living room.
Once you have the annual cost of all these domestic costs, divide the total by the number of habitable rooms in the house. This should give you a figure for the cost of maintaining the office.
Habitable rooms are -
living rooms
attached conservatories
kitchen
dining room
bedrooms
It does NOT include bathrooms, utility rooms, garages, sheds, greenhouses, outhouses etc
Depending on the house, the number of habitable rooms usually works out between four to eight.
Obviously, this calculation works out a lot higher than £2 to £4 per week but I have used it as the basis for my "Use of Home as Office" calculations for around 20 years and it has never been queried - ever.
Does that risk losing partial CGT exemption later on down the journey?Other HMRC advice says add up the domestic running costs of the house (light, heat, insurance, repairs, Council Tax, Water Charges - and even mortgage interest). Allocate one of the habitable rooms of the house as "the office".
Note, you do not have to have converted a room to an office or even use any specific room for work.
The theory is that at any given time you will only be operating out of one room - whether it's the kitchen, a bed room or a living room.
Once you have the annual cost of all these domestic costs, divide the total by the number of habitable rooms in the house. This should give you a figure for the cost of maintaining the office.
Habitable rooms are -
living rooms
attached conservatories
kitchen
dining room
bedrooms
It does NOT include bathrooms, utility rooms, garages, sheds, greenhouses, outhouses etc
Depending on the house, the number of habitable rooms usually works out between four to eight.
Obviously, this calculation works out a lot higher than £2 to £4 per week but I have used it as the basis for my "Use of Home as Office" calculations for around 20 years and it has never been queried - ever.
No.
CGT would only kick in if a room was extensively modified for non-domestic use only. For example, converting a garage into a dedicated office or surgery (which I've seen done).
As long as the room retains its chiefly domestic use (bedroom, kitchen etc), then there will never be an issue.
Again, in my 40 years of working in accountancy, the only time I've seen Capital Gains Tax come into play was when a part of the house had been distinctly converted into a business premises (and the requisite planning permission obtained too).
Note also above - you can make this claim even if you move around the house using different rooms e.g. Monday you did some work in the conservatory. Wednesday you worked in the living room watching The One Show. Friday you worked in the kitchen.
CGT would only kick in if a room was extensively modified for non-domestic use only. For example, converting a garage into a dedicated office or surgery (which I've seen done).
As long as the room retains its chiefly domestic use (bedroom, kitchen etc), then there will never be an issue.
Again, in my 40 years of working in accountancy, the only time I've seen Capital Gains Tax come into play was when a part of the house had been distinctly converted into a business premises (and the requisite planning permission obtained too).
Note also above - you can make this claim even if you move around the house using different rooms e.g. Monday you did some work in the conservatory. Wednesday you worked in the living room watching The One Show. Friday you worked in the kitchen.
Edited by Eric Mc on Thursday 8th December 17:16
Eric Mc said:
No.
CGT would only kick in if a room was extensively modified for non-domestic use only. For example, converting a garage into a dedicated office or surgery (which I've seen done).
As long as the room retains its chiefly domestic use (bedroom, kitchen etc), then there will never be an issue.
Again, in my 40 years of working in accountancy, the only time I've seen Capital Gains Tax come into play was when a part of the house had been distinctly converted into a business premises (and the requisite planning permission obtained too).
Note also above - you can make this claim even if you move around the house using different rooms e.g. Monday you did some work in the conservatory. Wednesday you worked in the living room watching The One Show. Friday you worked in the kitchen.
Cool....and good!CGT would only kick in if a room was extensively modified for non-domestic use only. For example, converting a garage into a dedicated office or surgery (which I've seen done).
As long as the room retains its chiefly domestic use (bedroom, kitchen etc), then there will never be an issue.
Again, in my 40 years of working in accountancy, the only time I've seen Capital Gains Tax come into play was when a part of the house had been distinctly converted into a business premises (and the requisite planning permission obtained too).
Note also above - you can make this claim even if you move around the house using different rooms e.g. Monday you did some work in the conservatory. Wednesday you worked in the living room watching The One Show. Friday you worked in the kitchen.
Edited by Eric Mc on Thursday 8th December 17:16
To concur with Eric, from the tax return notes:
Box 21 Rent, rates, power and insurance costs
This includes, for example, rent for business
premises, business and water rates, light, heat,
power, property insurance, security, and the
business use of your home (business proportion or
simplified expenses amount).
The costs of any non-business part, or private use
of the business premises and the costs of buying
business premises are disallowable expenses.
If you include them, you also need to put these in
box 36.
If you use your home for business, or your home
is part of the business premises, you can only
claim the business proportion of rent, business
and water rates, light, heat, power, etc as above.
Alternatively you can use the simplified expenses
flat rate amounts.
A For more information on simplified expenses, go to
www.gov.uk/simpler-income-tax-simplified-expenses
https://www.gov.uk/government/uploads/system/uploa...
Box 21 Rent, rates, power and insurance costs
This includes, for example, rent for business
premises, business and water rates, light, heat,
power, property insurance, security, and the
business use of your home (business proportion or
simplified expenses amount).
The costs of any non-business part, or private use
of the business premises and the costs of buying
business premises are disallowable expenses.
If you include them, you also need to put these in
box 36.
If you use your home for business, or your home
is part of the business premises, you can only
claim the business proportion of rent, business
and water rates, light, heat, power, etc as above.
Alternatively you can use the simplified expenses
flat rate amounts.
A For more information on simplified expenses, go to
www.gov.uk/simpler-income-tax-simplified-expenses
https://www.gov.uk/government/uploads/system/uploa...
Note that the above advice relates to self employed individuals rather than limited companies. However, the principle is exactly the same.
The accounting entry for a limited company is -
Debit - "Use of Home as office" with the calculated cost
Credit - "Director's Current Account".
Effectively the company now owes this amount to the director who can literally draw cash out of the company bank account to cover this cost. After all, he will already have paid the full amounts from his personal resources and he is therefore perfectly entitled to reclaim the business related element from the company - tax free.
The accounting entry for a limited company is -
Debit - "Use of Home as office" with the calculated cost
Credit - "Director's Current Account".
Effectively the company now owes this amount to the director who can literally draw cash out of the company bank account to cover this cost. After all, he will already have paid the full amounts from his personal resources and he is therefore perfectly entitled to reclaim the business related element from the company - tax free.
On the Business Rates front, it is technically possible that if you have a dedicated room as an office it could be assessed for Business Rates (thanks to a HMRC employee who appealed her Council Tax as she had lost a room due to working from home).
However it is, in the normal scheme of things very unlikely to be assessed as such, unless perhaps you have the public calling eg Doctors Surgery.
However it is, in the normal scheme of things very unlikely to be assessed as such, unless perhaps you have the public calling eg Doctors Surgery.
Eric Mc said:
Once you have the annual cost of all these domestic costs, divide the total by the number of habitable rooms in the house. This should give you a figure for the cost of maintaining the office.
Does this assume working from home full time?Our accountant doesn't seem to mind pushing the envelope on some matters, but he's adamant we can only claim £4/wk. Nominally we should only be at home one day per week, but increasingly it's more than that.
If you AREN'T working at home full time, use the formula described above by me but time apportion it based on the hours you DO work from home.
As someone kindly provided the HMRC link above, you can see that merely claiming on a £4 per week basis is only an option. It is not compulsory.
As someone kindly provided the HMRC link above, you can see that merely claiming on a £4 per week basis is only an option. It is not compulsory.
Eric Mc said:
Excellent.
I don't know where this £208 limit (£4 x 52) comes from to be honest. How did HMRC come up with that figure as being realistic?
On my monthly payslip I get given a 'home allowance' which is a tax free amount supposed to cover running a home phone line or other small business expenses incurred out of the office. I think this is around £4 per week but would have to check. Perhaps there is confusion between this allowance (for office based staff) and one for people actually working at home?I don't know where this £208 limit (£4 x 52) comes from to be honest. How did HMRC come up with that figure as being realistic?
Eric Mc said:
Excellent.
I don't know where this £208 limit (£4 x 52) comes from to be honest. How did HMRC come up with that figure as being realistic?
I suppose if you do your calc and then pro-rata it for a day per week it's not that far out.I don't know where this £208 limit (£4 x 52) comes from to be honest. How did HMRC come up with that figure as being realistic?
We used to claim £150 every 6 months but on an inspection visit our accountant was told we should only claim £104.
I and accountant use formaula suggested by Eric Mc and it is more "beneficial" in my case.
Suspect it will be much better for most people cf to £4/week.
One thing that I never considered was to simply draw the calculated monies out of the (LTD) business and Credit Directors Current Account - going to look into this.
Suspect it will be much better for most people cf to £4/week.
One thing that I never considered was to simply draw the calculated monies out of the (LTD) business and Credit Directors Current Account - going to look into this.
I'm interested in this too, but with a slightly different twist. I have a large detatched garage at the bottom of my garden that I use for work (small limited company, I am sole director and only employee, no other business premises, so my home is also registered office and trading address). Ground floor of the garage is storage and workshop, upstairs I've done a basic loft conversion into semi habitable space that I use as an office. The contents of the garage composed of at least 80% (probably 90%) business stock and equipment, but I do store a couple of bicycles in there, so obviously not 100% business. There is a parking space on the property to the rear of the garage, that is used to park my work van. I also have a desk and PC in the corner of the living room for work use, and recently I've been doing the majority of my admin work from here (more comfortable than trying to heat the loft of a garage. I work from home mostly, the rest of the time I am travelling to and working at customer premises. It varies depending on what jobs I have on - any any particular week I could spend 5 days out on sites, or I could be working from home all week. On average, I guess I'm out on site for 1 to 2 days per week.
Until recently, I'd been renting the property, and my accountant was happy for me to apportion an amount of the rent as a business expense. But I've now purchased the house myself (with the garage obviously), so any rent that the business pays, I personally become the beneficiary of, which is going to be treated as taxable income to me.
The garage and parking space constitute a significant part of the property as a whole - the garage actually has a footprint marginally larger than the main house (terraced). I'd estimate that without it's presence that house would be worth £40 to 50k less. I have a mortgage of about 50% LTV, so could I claim the mortgage interest? Would that be on the whole value of the garage (on the grounds that the mortgage is more than 50k), or should it be apportioned on the 50% basis?
In the method Eric cited above, you are dividing using habitable rooms, and a garage is not classed as habitable space, so does that mean I can't claim anything for running my business out of it? The garage could do with some maintenance - lots of neglected exterior wood that needs painting as a minimum. Building wise, the garage is still a domestic garage, it's not like it has a shop front to it or a reception area etc. I'm vaguely aware that there could be business rates and capital gains implications if I try to push it as primarily/exclusively business use? Although I'm pretty confident that it would fall under the small business exemption for rates.
Obviously, I need to follow my own accountant's guidance, just trying to get some ideas as I've not had chance to discuss it with him yet.
Until recently, I'd been renting the property, and my accountant was happy for me to apportion an amount of the rent as a business expense. But I've now purchased the house myself (with the garage obviously), so any rent that the business pays, I personally become the beneficiary of, which is going to be treated as taxable income to me.
The garage and parking space constitute a significant part of the property as a whole - the garage actually has a footprint marginally larger than the main house (terraced). I'd estimate that without it's presence that house would be worth £40 to 50k less. I have a mortgage of about 50% LTV, so could I claim the mortgage interest? Would that be on the whole value of the garage (on the grounds that the mortgage is more than 50k), or should it be apportioned on the 50% basis?
In the method Eric cited above, you are dividing using habitable rooms, and a garage is not classed as habitable space, so does that mean I can't claim anything for running my business out of it? The garage could do with some maintenance - lots of neglected exterior wood that needs painting as a minimum. Building wise, the garage is still a domestic garage, it's not like it has a shop front to it or a reception area etc. I'm vaguely aware that there could be business rates and capital gains implications if I try to push it as primarily/exclusively business use? Although I'm pretty confident that it would fall under the small business exemption for rates.
Obviously, I need to follow my own accountant's guidance, just trying to get some ideas as I've not had chance to discuss it with him yet.
The apportionment system I mentioned could be used in arriving at a "running cost" figure for the outhouse. Don't forget, tax is charged, not on rental income but on rental PROFIT. If the charge being put through the company is purely a split of the actual cost of heating, lighting and maintaining the room/building you use for business, then there cannot be, by definition, any profit being derived from rent.
The main concern you MIGHT have is that you could be exposing yourself to a Capital Gains Tax charge if and when you disposed of the property in respect of the "workshop"!. However, if, before sale, you unconverted it back to a normal garden building I think this problem would disappear.
The main concern you MIGHT have is that you could be exposing yourself to a Capital Gains Tax charge if and when you disposed of the property in respect of the "workshop"!. However, if, before sale, you unconverted it back to a normal garden building I think this problem would disappear.
Gassing Station | Business | Top of Page | What's New | My Stuff