Using home premises for business purposes
Discussion
I'm moving to Scotland this year and sometime next year, the business will move up after me (the business being run by my dad and me). There will be a need to locate a couple of servers somewhere but as part of the move, we're trying to cut back on overheads, so we'll be going for a pretty small, managed office somewhere in Edinburgh (probably). As a result, we'd rather have our kit in a property owned by us, and seeing as I'm looking for a house rather than a flat, that makes mine more suitable than his.
With me so far?
The thing is, presumably I can then be paid a contribution by the company for the fact that my house is being used for company reasons, including but not limited to, things like a portion of the electricity, the broadband etc, ie stuff the server will utilise.
However, the query is, how is this best handled? Money paid to me would presumably result in tax implications - are there any legit ways to avoid that?
And in writing this post, I've also had the thought that that might have implications on the mortgage. However, this isn't planned until I've been up there a while, so is it still an issue if we decide to locate the odd bit of kit there AFTER I've got a regular, non business, personal only, honest guv, wink wink, mortgage sorted?
Or should I just bugger off this intermawebby thing and talk to a real person
With me so far?
The thing is, presumably I can then be paid a contribution by the company for the fact that my house is being used for company reasons, including but not limited to, things like a portion of the electricity, the broadband etc, ie stuff the server will utilise.
However, the query is, how is this best handled? Money paid to me would presumably result in tax implications - are there any legit ways to avoid that?
And in writing this post, I've also had the thought that that might have implications on the mortgage. However, this isn't planned until I've been up there a while, so is it still an issue if we decide to locate the odd bit of kit there AFTER I've got a regular, non business, personal only, honest guv, wink wink, mortgage sorted?
Or should I just bugger off this intermawebby thing and talk to a real person
The only thing to be careful with here is if you are charging a portion of your house expenses to the business then a you may be liable to CGT on that portion of the house when you sell it. I'll leave it to someone with more recent tax experience than me to fill you in on that though!
Edited by Ali_D on Wednesday 30th August 14:08
although Eric will give his professional view on this, I looked into it when setting up my business and found that different accountantcy firms have different views on it. The options are:
1) add up number of proper rooms (ie not bathroom, loo etc) and divide your utility bills etc by that number and charge back as expenses per month
2) charge just a nominal fixed amount per month
3) don't bother as it's a questionable expense
I do the first option which is around £40 per month. Remember though that your mortgage can't be included (whereas rent can I believe)
Also, make sure your house insurance covers you for running a business from home. Most allow standard administration stuff to be done however I'm not sure how they would view server hosting etc (unless you're just talking about local 'internal' servers)
1) add up number of proper rooms (ie not bathroom, loo etc) and divide your utility bills etc by that number and charge back as expenses per month
2) charge just a nominal fixed amount per month
3) don't bother as it's a questionable expense
I do the first option which is around £40 per month. Remember though that your mortgage can't be included (whereas rent can I believe)
Also, make sure your house insurance covers you for running a business from home. Most allow standard administration stuff to be done however I'm not sure how they would view server hosting etc (unless you're just talking about local 'internal' servers)
Ali_D said:
The only thing to be careful with here is if you are charging a portion of your house expenses to the business then a you may be liable to CGT on that portion of the house when you sell it.
That is only true if you actually apply for a Change of Use to business use for, say, a standalone home office or completely separate annex or something. If you are merely renting out a room in your house to your business or otherwise claiming expenses off your business for use of part of your home then there is not a change of use as far as CGT is concerned. I'm reasonably sure of that but it is only a layman's understanding and I would seek professional clarification. Insurance. Yes, you will need to check with your insurers. Business equipment will almost certainly be excluded in which case you would probably need to purchase additional business insurance for the business stuff. This is what my wife does for business stock held at our home address. She arranged it through HSBC who have a specific business policy aimed at people who run businesses from home or who have business interests at their home address.
Likewise for my own business, which owns most of our computer equipment which is excluded under our house policy and is covered under a separate business policy (along with Professional Indemnity, Employers Liability and Public Liability).
Edited by JonRB on Wednesday 30th August 22:10
I am not sure this is exactly as HMRC usually see it but my accountant seems happy and the VAT man who inspected recently didn't mind;
I have calculated costs based on usage rather than just the area, because the office is in use 12/14 hours a day 6 days a week and uses disproportionate amounts of heat/light compared to the rest of the house where the lights are off most of the time and where the only drain is the fridge etc. I logged activity for a period to see which rooms were in use and calculated the contribution the business needed to make to pay its way from that.
I have done the same with telephone. I spent a period logging all calls and their costs to see what proportion were business based and then recharge that % to the business. The same with the mobil, although I also have a private mobile phone so the vast majority of the mobile bill belongs to the business.
I did the same with mileage. I do 200 miles a month of local miles (post office, TNT depot, collecting and delivering stuff, travelling to the railway station etc). That is based on an average over a 6 month period when I logged every short journey. The prospect of recording every 1 mile trip to the post office for ever didn't appeal and I was told that as long as I could show that the costs were reasonably incurred and accurate that would be OK.
I recharge everything that is a cost directly from the 2 rooms the business occupies as the rooms have no other use (carpetting, decorating, repairs, light bulbs, even down to a can of fly spray over the summer). In my last place where we used a bedroom I even recharged that portion of the carpet on the landing that led only to that office as it was only used for business purposes.
The only thing I do recharge based soley on area is the window cleaner!
I don't charge 'rent' to the business as that I think has CGT issues and the money would just come back to me to be taxed.
I have a fiend who just charges £200 a month for everything and she seems to have got away with that having done something similar to me in terms of costing but then levied a flat charge. I have increased the charge for hearing and lighting this summer because of the price rises bust she has struggled to do that because she wasn'y as precise in what proportion of the £200 was for heating and electricty.
I have calculated costs based on usage rather than just the area, because the office is in use 12/14 hours a day 6 days a week and uses disproportionate amounts of heat/light compared to the rest of the house where the lights are off most of the time and where the only drain is the fridge etc. I logged activity for a period to see which rooms were in use and calculated the contribution the business needed to make to pay its way from that.
I have done the same with telephone. I spent a period logging all calls and their costs to see what proportion were business based and then recharge that % to the business. The same with the mobil, although I also have a private mobile phone so the vast majority of the mobile bill belongs to the business.
I did the same with mileage. I do 200 miles a month of local miles (post office, TNT depot, collecting and delivering stuff, travelling to the railway station etc). That is based on an average over a 6 month period when I logged every short journey. The prospect of recording every 1 mile trip to the post office for ever didn't appeal and I was told that as long as I could show that the costs were reasonably incurred and accurate that would be OK.
I recharge everything that is a cost directly from the 2 rooms the business occupies as the rooms have no other use (carpetting, decorating, repairs, light bulbs, even down to a can of fly spray over the summer). In my last place where we used a bedroom I even recharged that portion of the carpet on the landing that led only to that office as it was only used for business purposes.
The only thing I do recharge based soley on area is the window cleaner!
I don't charge 'rent' to the business as that I think has CGT issues and the money would just come back to me to be taxed.
I have a fiend who just charges £200 a month for everything and she seems to have got away with that having done something similar to me in terms of costing but then levied a flat charge. I have increased the charge for hearing and lighting this summer because of the price rises bust she has struggled to do that because she wasn'y as precise in what proportion of the £200 was for heating and electricty.
graham@reading said:
Very informative, thank you 
That's almost exactly the scenario I'll have - a room solely used for business purposes.
That's almost exactly the scenario I'll have - a room solely used for business purposes.
Oh no you won't! If you do that you are opening yourself up for a claim for Business Rates from the Valuation Officer! The room is therefore an office during the day, and a study in the evening!
It is very unlikely that the Valuation Officer will bother you, but it is possible, especially if you manage to upset a neighbour or similar.
graham@reading said:
It's a Limited Company. I'm not a director or shareholder at present, although that could change if it was beneficial.
What's your interest then? A straight employee? If that is the case then you should be looking for the company to reimburse you for all expenses associated with renting them a room in your house.
As JohnRB says, work out the work related proportion of the domestic costs that you incur because you are working some of the time from home. Then claim those costs back from your employer as a reimbursement. Your employer declares the payments made to you for these Expenses in the P11d form at the end of the tax year and you make sure you declare the Expenses and make a Section 198 Claim as Job Related Expenses for the same amount to the Revenue.
Gassing Station | Business | Top of Page | What's New | My Stuff