Sole Trader & Home Office

SarahS

Hi

I have just accepted a new client whose accountants last year claimed £600 as home office expenses. This was obviously calculated on a proportionate basis.

I am awaiting for professional clearance but do not expect to receive working papers from the accountant which would obviously show how this amount was calculated.

The client is expecting the same amount again this year. Can anyone shed any light on how they deal with this without working papers?

Thanks.

Sarah

deanshepherd

SarahS wrote: »

I have just accepted a new client whose accountants last year claimed £600 as home office expenses. This was obviously calculated on a proportionate basis.

Sounds more like £50 per month to me!

I usually get clients to provide me with annual running costs each year and advise them that otherwise it could be questioned by HMRC and disallowed at a later date.

JodieR

I usually tell clients that in the past it was unclear on what could be claimed in respect of use of home as office and so most accountants would put through a monthly amount, but there has recently been clarification on the matter and I have the examples that HMRC give here http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm printed off and discuss with the client which they are most similar to and take it from there.
It gets me out of not agreeing or disagreeing with the previous calculations and means I'm not worried about any potential investigations.

SarahS

Sorry - £700!

deanshepherd wrote: »

Sounds more like £50 per month to me!

I usually get clients to provide me with annual running costs each year and advise them that otherwise it could be questioned by HMRC and disallowed at a later date.

Sorry, it's actually £700 each year!

mc25

I could say for that amount you definately need some documentation to support the figure, as that is too high. Best of luck

deanshepherd

Depends on circumstances. My last claim was over £2k. I would say £700 is about average for my clients.

burg

Got to agree with Dean.

I would not say £700 was too high as long as it is reasonable for that client.

I too have clients claiming around £2k and often average around £500 - £1000.

SarahS

I was thinking some form of documentation would be required to support a claim of that amount though?

Psyche

It should be enough that the client has the source documents, i.e. rental contract, mortgage, utility bills, council tax bill, as well as the calculation of how you arrived at the amount e.g. 10% of the rent and council tax, 20% of the electricity, etc. It just needs to be reasonable based on how much of the home is being used for business purposes, for instance how much of the total area, and electricity use based on how much time is being spent on the computer, etc. It's not an exact science but if it seems reasonable to you, it will probably be reasonable to the HMRC. For instance I have a client who lives in a very small flat and he really is using 20% of the space to run his business! Whereas I'm only claiming 5%, but that will probably go up next year as my files expand o_O

deanshepherd

When I worked from my study (with my assistant working in the conservatory) I claimed around 20% of my costs which came to well over £2k thanks to my hefty mortgage.

Now I'm about to move into office premises so I can kiss goodbye to all that tax relief!

burg

It is a shame Dean but, it must be a sign that business is doing well?

Best of luck with the move. I assume you are moving after Jan 31?

SarahS

I'm looking at leasing a small office for extra storage, meeting space and to work from around client appointments but will probably only use it about 40% of the time - the remaining 60% of my time will be spent working from my home office. I still intend to claim a proportion of home expenses for the time that is spent working from home (albeit smaller than I am currently)

lorraine

Quick question, if I was to put through a proportion of mortgage, electric, gas bills etc as use of home as office expenses then this wouldn't incurr capital gains tax in the future, could someone confirm for me, I am a bit confused on this matter.

Thank you in advance.

burg

No as long as the premises is still primarily used as a residence.

As a note it is a 'use of home allowance' you put through the accounts which is calculated from a proportion of the household running costs.

deanshepherd

lorraine wrote: »

Quick question, if I was to put through a proportion of mortgage, electric, gas bills etc as use of home as office expenses then this wouldn't incurr capital gains tax in the future, could someone confirm for me, I am a bit confused on this matter.

It depends.

Principal private residence relief does not apply to any part of the home used exclusively for business purposes. That proportion of any future gain will be subject to CGT.

Whether part of your home is used exclusively for business is down to you.

lorraine

it won't be exclusively for business, so therefore no cgt could be incurred. Thanks for sorting that one!