Maintenance:business from home
Discussion
I know the general response to such questions is 'wholly and exclusively' for busienss purposes but I can't get my head around why accountants get all panicky at the mention of trying to claim somne of the maintenace costs of the building.
I am the director a small limited company who occupy the ground floor of my house. I occupy the upstairs and the barn behind. They have about 25% of the building and with the exception of paying their apportioned heating/lighting and decorating costs to date have paid nothing in rent or anything towards the upkeep of the building. They also use the entire loft are and the large garage to store their company car(s) and filing (which I rent from a neighbour).
I am reluctant to charge the company rent or maintenenace because I am told that if I start claiming proportional costs in this area the tax man will start chasing for CGT on the sale.
This seems a nonsense to me. The business occupy the rooms, yet I am expected to pay to maintain their occupation and use of bulding without which the copany would be paying £5-8k a year to rent.
Of late I have had to spent almost £2k having the house (which they occupy 50% of) repointed and rendered. I now have a serious drainage problem with drainage pipes under the offices and a bill for another £1500 plus VAT.
Couple of options I had thought of;
Start charging rent equal to the actual cost of maintenance so there is no profit to be taxed.
Charge them their proportion of any building maintenance and 100% of anything that relates only to the ground floor of the house.
I wondered if I should write to HMRC and get a definitive answer?
If you start charging rent, then surely that part of the premises would be deemmed to be commercial and then subject to business rates as well (and the pro-rata CGT due in the future on selling the property). In fact if the company occupies the ground floor and there are in effect no personal use for these rooms then technically these are subject to business rates anyway.
And at the end of the day it is you who will be making the tax free profit on the increase in value on the building. You are trying to have this benefit as well as have the company contribute (tax-free) to the repair costs.
Personally I reckon you should just swallow it. Writing to anyone is probably going to result in some kind of mini investigation and may not be to your benefit.
My wife and I run seperate businesses from home, both occupy 80-90% of the rooms that they are located in. We don't charge the companies any rent, and I pay all the maintenance on the fabric of the building, it's my home after all and I'll take any capital growth in the future. Obviously if there is something that is a 100% business expense (or asset) then we charge it to the company.
davidy
And at the end of the day it is you who will be making the tax free profit on the increase in value on the building. You are trying to have this benefit as well as have the company contribute (tax-free) to the repair costs.
Personally I reckon you should just swallow it. Writing to anyone is probably going to result in some kind of mini investigation and may not be to your benefit.
My wife and I run seperate businesses from home, both occupy 80-90% of the rooms that they are located in. We don't charge the companies any rent, and I pay all the maintenance on the fabric of the building, it's my home after all and I'll take any capital growth in the future. Obviously if there is something that is a 100% business expense (or asset) then we charge it to the company.
davidy
Edited by DavidY on Thursday 12th July 08:38
The Revenue recently decided that a business element of repairs and maintenance costs incurred on your private home could be allocated to the business if you ran your business from home. This charge could either be shown under a "Property Repairs" heading or incorporated under the "Business Use of Residence" charge.
In the case of Sole Traders, this is a fairly easy adjustment to include in the accounts - I do it for my clients wherever appropriate.
The situation with limited companies is slightly more problematic.
As the company is NOT the individual, as a separate entity IT probably doesn't incur ANY costs relating to the home.
In fact, if the company is paying any domestic bills on behalf of a director this could be construed as a "Benefit in Kind" on the director. At the very least, these payments would initially be allocated to the Director's Loan/Current account pending the clearing of that account at the financial year end/or 5 April by means of a Salary or Dividend adjustment. Obviously, the clearing procedure would create a potential personal tax (and even NI) charge on the director.
The best approach is for the Director to pay all his own domestic bills from his own personal funds.
At the end of the year, he should compile a list of the costs involved in running the home - work out the business element of these costs - and notify the accountant.
The accountant then processes a journal which places the charge under "Business Use of Residence" or "Property Costs" in the Profit and Loss account and credits the Director's Loan/Current Account.
I have used this latter approach for my limited company clients and, so far, have never had any propblems. The main thing is to keep the costs within reason (although what that means is always open to interpretation)
Regarding Capital Gains Tax on your main residence, no such tax will arise on the sale of the property even if you run a business from home provided that the house is not converted in any significant way to enable you to run your business from home.
Using a bedroom as an office would not be a significant change. Converting a garage into a workshop or surgery would.
In the case of Sole Traders, this is a fairly easy adjustment to include in the accounts - I do it for my clients wherever appropriate.
The situation with limited companies is slightly more problematic.
As the company is NOT the individual, as a separate entity IT probably doesn't incur ANY costs relating to the home.
In fact, if the company is paying any domestic bills on behalf of a director this could be construed as a "Benefit in Kind" on the director. At the very least, these payments would initially be allocated to the Director's Loan/Current account pending the clearing of that account at the financial year end/or 5 April by means of a Salary or Dividend adjustment. Obviously, the clearing procedure would create a potential personal tax (and even NI) charge on the director.
The best approach is for the Director to pay all his own domestic bills from his own personal funds.
At the end of the year, he should compile a list of the costs involved in running the home - work out the business element of these costs - and notify the accountant.
The accountant then processes a journal which places the charge under "Business Use of Residence" or "Property Costs" in the Profit and Loss account and credits the Director's Loan/Current Account.
I have used this latter approach for my limited company clients and, so far, have never had any propblems. The main thing is to keep the costs within reason (although what that means is always open to interpretation)
Regarding Capital Gains Tax on your main residence, no such tax will arise on the sale of the property even if you run a business from home provided that the house is not converted in any significant way to enable you to run your business from home.
Using a bedroom as an office would not be a significant change. Converting a garage into a workshop or surgery would.
Edited by Eric Mc on Thursday 12th July 08:46
Eric Mc said:
The Revenue recently decided that a business element of repairs and maintenance costs incurred on your private home could be allocated to the business if you ran your business from home. This charge could either be shown under a "Property Repairs" heading or incorporated under the "Business Use of Residence" charge.
In the case of Sole Traders, this is a fairly easy adjustment to include in the accounts - I do it for my clients wherever appropriate.
The situation with limited companies is slightly more problematic.
As the comapny is NOT the individual, as a separate entity IT probably doesn't incur ANY costs relating to the home.
In fact, if the company is paying any domestic bills on behalf of a director this could be construed as a "Benefit in Kind" on the director. At the very least, these payments would initially be allocated to the Direcor's Loan/Current account pending the clearing of that account at the financial year end/or 5 April by means of a Salary or Dividend adjustment. Obviously, the clearing procedure would create a potential personal tax (and even NI) charge on the director.
The best approach is for the Director to pay all his own domestic bills from his own personal funds.
At the end of the year, he should compile a list of the costs involved in running the home - work out the business element of these costs - and notify the accountant.
The accountant then processes a journal which places the charge under "Business Use of Residence" or "Property Costs" in the Profit and Loss account and credits the Director's Loan/Current Account.
I have used this latter approach for my limited company clients and, so far, have never had any propblems.
Eric, that is the clearest and most sensible thing I have ever heard.In the case of Sole Traders, this is a fairly easy adjustment to include in the accounts - I do it for my clients wherever appropriate.
The situation with limited companies is slightly more problematic.
As the comapny is NOT the individual, as a separate entity IT probably doesn't incur ANY costs relating to the home.
In fact, if the company is paying any domestic bills on behalf of a director this could be construed as a "Benefit in Kind" on the director. At the very least, these payments would initially be allocated to the Direcor's Loan/Current account pending the clearing of that account at the financial year end/or 5 April by means of a Salary or Dividend adjustment. Obviously, the clearing procedure would create a potential personal tax (and even NI) charge on the director.
The best approach is for the Director to pay all his own domestic bills from his own personal funds.
At the end of the year, he should compile a list of the costs involved in running the home - work out the business element of these costs - and notify the accountant.
The accountant then processes a journal which places the charge under "Business Use of Residence" or "Property Costs" in the Profit and Loss account and credits the Director's Loan/Current Account.
I have used this latter approach for my limited company clients and, so far, have never had any propblems.
Eric
Whilst I understand your post, surely what you are proposing is open to quite a lot of abuse (depending on the individual/company or accountant involved). In a normal business lease of a property often there are many things that are the landlords reponsibility, in my mind this type of repair (say structual/drainage/etc) would be born by the landlord as he is getting the capital growth of the premises.
You are 'alomost' implying that if I put my business in a near derelict room on the side of my house, that I could claim the rebuilding costs of this room against the company and then still take the capital growth from premises tax-free personally.
If the work was say rewiring the 'office' part of the building to meet the requirements of the company, then fair enough, but IMHO getting the company to contribute to drainage repair costs is taking the p*ss and is clearly tax avoidance.
You may of course advise me otherwise.....
davidy
Whilst I understand your post, surely what you are proposing is open to quite a lot of abuse (depending on the individual/company or accountant involved). In a normal business lease of a property often there are many things that are the landlords reponsibility, in my mind this type of repair (say structual/drainage/etc) would be born by the landlord as he is getting the capital growth of the premises.
You are 'alomost' implying that if I put my business in a near derelict room on the side of my house, that I could claim the rebuilding costs of this room against the company and then still take the capital growth from premises tax-free personally.
If the work was say rewiring the 'office' part of the building to meet the requirements of the company, then fair enough, but IMHO getting the company to contribute to drainage repair costs is taking the p*ss and is clearly tax avoidance.
You may of course advise me otherwise.....
davidy
It's all about "reasonableness".
This is a key factor in the claiming of ALL business costs. Yet, it is nowhere actually defined in UK tax legislation. However, if the Revenue think that a claim is "unreasonable", they will be quick to let you know.
At that point, it is up to you (or your accoutant) to argue why you thought such a cost was correctly chargeable to the business' Profit and Loss account.
Most personal tax and all company tax is now calculated under a Self Assessment system. This means it is up to the taxpayer to ensure that THEY are applying the tax regulations in a correct, fair and equitable manner.
This is a key factor in the claiming of ALL business costs. Yet, it is nowhere actually defined in UK tax legislation. However, if the Revenue think that a claim is "unreasonable", they will be quick to let you know.
At that point, it is up to you (or your accoutant) to argue why you thought such a cost was correctly chargeable to the business' Profit and Loss account.
Most personal tax and all company tax is now calculated under a Self Assessment system. This means it is up to the taxpayer to ensure that THEY are applying the tax regulations in a correct, fair and equitable manner.
If you were really concerned about the tax allowability in the business accounts, there is nothing to stop you adding an explanatory note to the tax computations detailing the breakdown of the repairs and maintenance costs being claimed. That means you are making a full disclosure to the Revenue and they will have no comeback against you.
The worst that can happen is that the expense will be disallowed.
The use of explanatory notes appears to have fallen out of favour with the advent of Self Assessment. They used to be a fundamental part of the submission of accounts and tax computations to the Revenue.
The reliance of tax software has probably helped reduce their use as accountants now tend to run off standard computations from their systems and use standard accompanying letters - in an effort to reduce time and costs.
The worst that can happen is that the expense will be disallowed.
The use of explanatory notes appears to have fallen out of favour with the advent of Self Assessment. They used to be a fundamental part of the submission of accounts and tax computations to the Revenue.
The reliance of tax software has probably helped reduce their use as accountants now tend to run off standard computations from their systems and use standard accompanying letters - in an effort to reduce time and costs.
DavidY said:
Eric
That was my understanding too!
But I still think claiming for drainage work is not on!
davidy
I was just feeling a bit miffed that my company are sat snuggly in the only 2 dry ground floor rooms of my house while I am looking at having to move out because of the floods and picking up a whopping unrecoverable bill for the drains that mainly service the business part of the house.That was my understanding too!
But I still think claiming for drainage work is not on!
davidy
My accountant is suggesting caution!
DavidY said:
Eric
Leftie's just said his company has the only two dry rooms on the ground floor of the house, therefore IMO he doesn't need to do drainage work for his company to function.
I would suggest that in this instance his accountant is right to suggest caution.
davidy
It now looks like our offices have not escaped the flooding (damp levels in one wall are through the roof: not literally!). Leftie's just said his company has the only two dry rooms on the ground floor of the house, therefore IMO he doesn't need to do drainage work for his company to function.
I would suggest that in this instance his accountant is right to suggest caution.
davidy
I think the insurance company will say that it is a rising damp problem that was there before which only now is being noticed and the damp gurantee company will say it is a water entry problem, not necesarily the floods fault directly. Bottom line is we may have to strip the plaster off one wall in the office, replaster and redecorate.
I think the company should pay for the work in their offices because they have this room wholly and exclusively for their use. I don't agree with the 'you make the capital gains so you pay all the maintenance' argument because every property owner who rents commercial property is in that position. Of course there is no gurantee of capital gains either (yes I know there have ben long term but the market has slowed if not stopped and dropped of late).
I have been content to pay for the paint work to be touched up etc. but when I am faced with a 4 figure bill for uninsured damp work, and if the work isn't done the H&S implications of working in damp and humid surroundings, suggest that this is a necesary cost to keep the business running?
I have decided to show some caution and I am picking up the tab for the drainage work ( about £1500).
How about if we drew up a maintainence contract that the company pays for all repairs to their own area, and apportioned costs to the general structural fabric in the areas they occupy (ie half of roof repairs as they have half the space? In a 300 year old bulding I don't think the company can not expect tp pick up reasonable maintenance bills, especially if I can show that I am spending a lot more than that and that none of their costs are paying for the domestic part of the building?
Leftie
Just pick up the tab and get on with life. Your accountant has already advised caution.
You have spent a significant amount of time agonising over this (and your other flood/drainage/water damage threads). If you had put that effort into your business I'm sure you could have reaped the costs of the remedial work to the ground floor several times over!!! Look at the bigger picture and just get on with running an effective business.
Just my opinion
davidy
Just pick up the tab and get on with life. Your accountant has already advised caution.
You have spent a significant amount of time agonising over this (and your other flood/drainage/water damage threads). If you had put that effort into your business I'm sure you could have reaped the costs of the remedial work to the ground floor several times over!!! Look at the bigger picture and just get on with running an effective business.
Just my opinion
davidy
Surely the test for reasonableness is what you would charge the occupier of the business part if it was not your own company? Mind you I am not an accountant but a surveyor!
In most cases the occupying company would occupy the rooms under a lease and pay a rent. The lease would either be on a full repairing and insuring, or internal repair and insuring basis.
Full repairing and insuring basis where more than one party is in possesion of the whole building: The tenant would be responsible (dependant on the exact wording of the lease) for all internal repairs to the rooms occupied by the business, and there would be a service charge to cover a proportion of costs to common parts which would include the roof, external walls, foundations, drains, drive etc.
For an internal repair and insuring lease then the amount charged in rent would be higher but the tenant would only be responsible for the floor, wall and ceiling coverings, and there would be no service charge.
In both cases it is likely that the landlord would insure the property and charge a proportion back to the tenant (mainly as the Landlord wants to be certain the building is insured!)
If the drains benefit the business then they should pay a fair proportion of their maintenance and repair and they should pay a fair proportion of the costs to the rest of the building.
I would have thought the easiest thing to have done would have been to have leased part of the building to the company on standard Law Society terms, and got a qualified Chartered Surveyor to give an independent valuation as to the rent. The business would then have been responsible for a fair proportion of the costs of repais. However this is with the benefit of hindsight!
In most cases the occupying company would occupy the rooms under a lease and pay a rent. The lease would either be on a full repairing and insuring, or internal repair and insuring basis.
Full repairing and insuring basis where more than one party is in possesion of the whole building: The tenant would be responsible (dependant on the exact wording of the lease) for all internal repairs to the rooms occupied by the business, and there would be a service charge to cover a proportion of costs to common parts which would include the roof, external walls, foundations, drains, drive etc.
For an internal repair and insuring lease then the amount charged in rent would be higher but the tenant would only be responsible for the floor, wall and ceiling coverings, and there would be no service charge.
In both cases it is likely that the landlord would insure the property and charge a proportion back to the tenant (mainly as the Landlord wants to be certain the building is insured!)
If the drains benefit the business then they should pay a fair proportion of their maintenance and repair and they should pay a fair proportion of the costs to the rest of the building.
I would have thought the easiest thing to have done would have been to have leased part of the building to the company on standard Law Society terms, and got a qualified Chartered Surveyor to give an independent valuation as to the rent. The business would then have been responsible for a fair proportion of the costs of repais. However this is with the benefit of hindsight!
I don't think anything as formal as this would be required to satisfy an Inspector of Taxes.
If Leftie really is concerned about being able to claim some portion of the expected repair costs through his business, he can always write to the Revenue and ask for a definitive ruling in advance.
As I explained earlier, he could "chance his arm" and claim the cost in the business accounts. However, it would be advisable to include a full explanation of these repair costs in the submission material to the Revenue (accounts, notes to the accounts, tax computations and notes to the tax computations). The worse that can happen is that the Revenue will disalllow the expenses for tax purposes.
If Leftie really is concerned about being able to claim some portion of the expected repair costs through his business, he can always write to the Revenue and ask for a definitive ruling in advance.
As I explained earlier, he could "chance his arm" and claim the cost in the business accounts. However, it would be advisable to include a full explanation of these repair costs in the submission material to the Revenue (accounts, notes to the accounts, tax computations and notes to the tax computations). The worse that can happen is that the Revenue will disalllow the expenses for tax purposes.
DavidY said:
Leftie
Just pick up the tab and get on with life. Your accountant has already advised caution.
You have spent a significant amount of time agonising over this (and your other flood/drainage/water damage threads). If you had put that effort into your business I'm sure you could have reaped the costs of the remedial work to the ground floor several times over!!! Look at the bigger picture and just get on with running an effective business.
Just my opinion
davidy
So nice you know all about my business to the point where you kow whether I can afford the time to post on PH.Just pick up the tab and get on with life. Your accountant has already advised caution.
You have spent a significant amount of time agonising over this (and your other flood/drainage/water damage threads). If you had put that effort into your business I'm sure you could have reaped the costs of the remedial work to the ground floor several times over!!! Look at the bigger picture and just get on with running an effective business.
Just my opinion
davidy
Leftie
With all due respect, you do publish quite a lot about your business on PH (along with numerous posts on trying to be the most efficient down to the last penny). Not mentioning your ambitions with your Dragon's Den thread. It was just an opinion that I posted and I would (personally, but then I'm not you!) channel my efforts into the bigger picture and deal with £££££ and not the £.
You ask for comment (as with most of your threads), I commented, your accountant's commented and so have numerous other people, maybe next time I won't bother
davidy
PS maybe you can use this news from HMRC to delay any due payments: http://www.turner-peachey.co.uk/cgi-bin/item.cgi?i...
With all due respect, you do publish quite a lot about your business on PH (along with numerous posts on trying to be the most efficient down to the last penny). Not mentioning your ambitions with your Dragon's Den thread. It was just an opinion that I posted and I would (personally, but then I'm not you!) channel my efforts into the bigger picture and deal with £££££ and not the £.
You ask for comment (as with most of your threads), I commented, your accountant's commented and so have numerous other people, maybe next time I won't bother
davidy
PS maybe you can use this news from HMRC to delay any due payments: http://www.turner-peachey.co.uk/cgi-bin/item.cgi?i...
Edited by DavidY on Thursday 2nd August 19:22
DavidY said:
Leftie
With all due respect, you do publish quite a lot about your business on PH (along with numerous posts on trying to be the most efficient down to the last penny). Not mentioning your ambitions with your Dragon's Den thread. It was just an opinion that I posted and I would (personally, but then I'm not you!) channel my efforts into the bigger picture and deal with £££££ and not the £.
You ask for comment (as with most of your threads), I commented, your accountant's commented and so have numerous other people, maybe next time I won't bother
davidy
PS maybe you can use this news from HMRC to delay any due payments: http://www.turner-peachey.co.uk/cgi-bin/item.cgi?i...
Fair enough David, I certainly won't fall out with anyone in this part of PH for having their say . Thanks for your words.With all due respect, you do publish quite a lot about your business on PH (along with numerous posts on trying to be the most efficient down to the last penny). Not mentioning your ambitions with your Dragon's Den thread. It was just an opinion that I posted and I would (personally, but then I'm not you!) channel my efforts into the bigger picture and deal with £££££ and not the £.
You ask for comment (as with most of your threads), I commented, your accountant's commented and so have numerous other people, maybe next time I won't bother
davidy
PS maybe you can use this news from HMRC to delay any due payments: http://www.turner-peachey.co.uk/cgi-bin/item.cgi?i...
Edited by DavidY on Thursday 2nd August 19:22
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