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Use of home as office

groundygroundy Trusted RegularRegistered Posts: 495
I am sure I know the answer to this one but I am having a moment of self doubt after taking on a new client from a well established Chartered accountant.

My understanding is that the maximum claim for a Limited company for use of home is £3 per week (previously £2 per week). I have had this confirmed during HMRC inspections and even had a client caught out by PAYE after delcaring £20 per week.

If there is more than a small amount of use I have taken to charging rent to the company by the director for the use of his/hers private residence and have been happy that this is correct.

However, back to my new client who is a web site company that has three directors, two of which are 90% based from their own homes and a third who works from a rented office but also uses his home at night to continue his work. Not a problem I thought they can all charge a rent as per above. However upon receiving a reply to my professional clearance it has become apparent that a use of home charge for the three directors totalling £2610 (2009) and £1800 (2008).

Upon further investigation it appears that the directors were instructed to draw a monthly amount each depending on their element of use of home.

Now I am certain that this is incorrect and would be caught under PAYE, however I would appreciate any alternative views on this matter.

Cheers

Ste

Comments

  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    Some accountants still call it 'use of home' even though it is an agreed rent payment.

    Some accountants fail to declare such rental income (and accompanying expenses) on the directors personal tax returns.

    Some accountants think companies are the same as sole-traders and can just apportion home running costs accordingly.

    I would assume items 1 and 2 above and hope HMRC don't assume item 3!
  • payrollpropayrollpro Trusted Regular Hampshire/SurreyRegistered, Working Together with HMRC Posts: 418
    I think we have to consider what the company is getting from the use of the home. I don't think it is as simple as is often stated. A company gets use of the premises as registered office, if that's what it is, secondly they get access to the space, what else do they get, use of the address as the business address for post etc, free use of heat and light, perhaps personal broadband and other facilities, if its business broadband there is the agreement to use the premises for wireless network plus exclusive access to kitchen, teas and coffees, toilets and for business visitors whcih some insurance companies will charge for. If the total value of the business equipment is up to £6k most insurance companies will cover it, so that's a cost as well.

    I would suggest setting up a use of premises agreement and set a rental figure based on the notional cost of registered address, post office box facilities, plus cost of travelling which would be incurred and add on a reasonable cost of everything else.

    Laid out like that HMRC has little argument to use if they challenge the charges, or rental. If the client is running a business, its got to look like a business and its got to face the costs of being a business. If you charge the employee bit, £3 a week, it actually starts to look like something else.

    Payrollpro
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    You can apportion expenses as you would a sole trader as long as it's declared on the property pages of the personal self assessment tax return and rent a room relief cannot apply.

    Agree with Dean. I would just get it right going forwards.
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    payrollpro wrote: »
    I would suggest setting up a use of premises agreement and set a rental figure based on the notional cost of registered address, post office box facilities, plus cost of travelling which would be incurred and add on a reasonable cost of everything else.

    All very sensible. Be careful if adding 'notional' costs to come to a rental figure as you will then have 'actual' profit to declare on your personal tax return. Having a NIC free profit can come in handy though - particularly if you have unused personal allowances and increasing salary is not feasible.
  • groundygroundy Trusted Regular Registered Posts: 495
    Thanks for the replies. That's as I thought, but I like I said this was done by an established Chartered firm.

    I dont think the directors have ever been advised to declare it on their personal tax returns, as direcors complete their own returns.

    I have since explained the rent basis and this appeared alien to the directors but are happy to adopt my method going forward.

    Thanks again
  • NewbieNewbie Well-Known Registered Posts: 229
    HMRC link below always useful, know your home worker.
    http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm
  • BIG WALBIG WAL Well-Known Registered Posts: 133
    The circumstances referred suggest the directors own their homes.

    Where the home is actually a rented residential property, would there be a necessity to show the apportionments on the directors' personal returns, as they are actually part of the rent paid to the landlord ?
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    No different.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    "I have had this confirmed during HMRC inspections and even had a client caught out by PAYE after delcaring £20 per week."

    Hi Groundy

    Apologizes for my ignorance but what do you mean by "caught out by PAYE".

    If the directors did not draw out monthly installments would this make a difference?

    Given that monthly installments have been made could these be debited to the appropriate director's loan account to avoid being caught out by PAYE?

    From this thread I gather that the apportionment method is wrong for limited companies using the director's residence as an office but I can't figure out why this method is wrong.

    Also, going forward, what is the best/correct way to go about doing a use of home charge for limited companies? Just stick to the £3/week? Or setting up the director as a sole trader and charging the company rent?

    Level 4 student
  • burgburg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,441
    Reader,

    The idea with a limited company is still on the same apportionment principle but as they are two different entities you cannot just apportion. The basis is that the rent charged to the limited company (for which you do not need to be self-employed) is equivalent to the apportioned costs of allowing the home to be used for business. This means that the limited company has a tax allowable deduction for rent and the individual has a rental income for which the expenses are similar meaning no profit and therefore no further tax.

    A small profit an often be useful to bridge the gap between the NI salary put through in the accounts and the personal allowance.
    Regards,

    Burg
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    Hi Ian

    "The idea with a limited company is still on the same apportionment principle but as they are two different entities you cannot just apportion."

    So if you "cannot just apportion" what extra has to be done?

    Also is there anything wrong with putting through £20/week assuming that this can be backed up by a calculation & evidence? Or would you get "caught out by PAYE"?

    Also, congratulations on all the success you are having; I've read various articles on your practice on accounting web and the aat mag. It's really satisfying to hear about successful mips :D
  • buster350buster350 New Member Registered Posts: 9
    Confused

    So I have read the HMRC (thanks Newbie)

    I understand all the proportion stuff.... its just the £2 charge i am not getting... does it have to be either £2 per week or a a justified proportion? or can it be say £5 per week or does this then fall into the proportionment catagory

    The reason why I ask is i have seen accounts recently that charge all sorts... For emaple some that charge something like £16 a week for 'Use of own residence' for a Dentist(!) that just does paperwork at home!

    so say for example the dentist was investigatied would the accountant have tio justify why its more then £2!?!

    (starting to think I shouldnt have read this thread lol)
  • NewbieNewbie Well-Known Registered Posts: 229
    To make life a little easier HMRC have agreed that anyone using their home for business purposes can claim £2-3 per week without fear of enquiry. To the best of my knowledge and belief above this requires proper apportionment.
  • burgburg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,441
    A flat amount can be paid no problem.

    However for the directors personal tax return you would need to declare the rental income. Therefore you would want to apportion some expenses to offset.

    The simplest way is to calculate the costs first and then set the rent charged based on this to ensure the full amount is being claimed and/or profit is not excessive and the tax benefit lost.

    As for sole-traders / partnerships then anything above £3 per week needs to be justified. There is no problem with a flat £10 per week as long as it can be proven that this is an apportionment of costs and not just made up. If it happens to be less than the apportioned costs then that is fine but potentially more could be claimed so why not?
    Regards,

    Burg
  • groundygroundy Trusted Regular Registered Posts: 495
    Hi Reader

    This was caught under PAYE as it had been claimed on the P&L and therefore deemed to be paid by HMRC. The journal was debit P&L credit Directors loan. As it was deemed as paid HMRC treated as PAYE income as outside the amount allowed to claim for use of home.

    Sole Traders are much different and I have succesfully argued the amount claimed on a couple of occasions. With Limited companies if there is sufficient use of the directors home then a rent charge is made and declared on the personal tax return with the relevant percentage of costs incurred offset against the rental income. Again I have had this approved by HMRC no problem.
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