Use of home as office

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
I'd be interested to hear how others arrive at this expense figure in the Profit and Loss A/c. From what I understand there is no one way of achieving this? Am I right?

Many thanks.

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    I asked HMRC this question recently - for a self employed person. I was told to divide the utility bills by the number of rooms in the house (assuming you use one room for your business) and claim that proportion. Nothing for "renting the space" The inspector said nothing about part time working but I suppose you would pro-rata it.
    The rules are different for homeworkers and for limited companies (directors of home based incorporated businesses) and I'm not so sure of that. If you search on Use of Home as Office on the HMRC website there are many references.
    I would be interested to learn what you find out.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    To add to Sheelagh's point I do the same for sole traders/ home workers and when I asked HMRC on behalf of a client who owns a limited company but wanted to work from home I was told they could work it out on the same basis or charge rent for the room provided it was a proper office and not used for any other purpose.

    If you find out anhing different I too would be interested.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    You've got to be very careful when using the method described to Sheelagh by HMRC, as you could get into a nasty CGT situation. If you're claiming, say, one seventh of your utility bills (assuming there's 7 rooms in your house), then HMRC will take the view that one seventh of your house is a business asset and if you sell your house and make a profit (which is obvoiusly very likely with house-prices so high) then one seventh of the gain is chargeble to CGT. Now this isn't always as bad as it seems, as the gain can be appotioned for the no of years the business is running, and often only half of the gain is attributable if the house is owned jointly. There's also taper relief and annual expemptions which often mean that no CGT is due, but nevertheless some clients could end up with a nasty surprise!

    I was told that HMRC accept a figure in the region of about £5 a week to cover any increase in utility bills, which wouldn't effect your PPR relief. I've never found anything to back this up, but have seen it on several sets of accounts prepared by other accountants so I'm assuming it's acceptable.

    So far as 'Renting the space' is concerned - if you think about it the reason that you wouldn't do it must be beacuse you'd then be receiving rental income, which is again taxable!

    Hope this helps

    Jodie

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    Jodie

    we have always put through £5 a week too for use of home as an office as it has never attracted any comment about capital gains.

    Annette
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    I have always worked on the principle/principal (sorry too late in the day to work out which is the right one!) that utility bills divided by rooms and nothing involved in the capital costs - ie mortgage interest - that way there is no chance of being clobbered for CGT - though having said that if a room is being used, the local rating officer should be told and business rates payable on that room - I work from home and have I done that??? Well, it's on my to-do list!!!!!!! :lol:

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    I've never known of any CGT implications when working out the rate to claim on utility bills. One of my clients moved and nothing was ever said by the revenue and not long after moving she had a routine inspection - nothing came out of that either.

    I plan to do the same as Claudia as in my neck of the woods too many people have been caught out by not paying business rates ( my next door neighbour was one) on an office based within the home.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    Well I'm pleased to hear that the revenue don't always enforce the CGT rule (although it definately happened to a client where I used to work, shortly before I joined), maybe it is only in cases where a portion of the mortgage interest is claimed, but I'm still not taking the risk! I'm sticking to the £5 a week.

    And as far as the rates situation is concerned - I notified the council that I was working from home and they asked a few questions (ie how many people would be visiting & whether I had any signs up) and then told me that I didn't need pay business rates. I hope I've kept a note of the name of the person i spoke to - don't want them changing their minds!

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    In a recent enquiry, my client has the use of home expense removed because he did not have a specific office!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    I agree with Jodie R you can get into capital gains issues with regard to "use of home as office"...

    The way round it is this...

    If the room has a private element of use then.. ta da not all business... stick a TV in there, Job done! :lol:

    If anyone subscribs to the "indicator - Tax" it was in there a few issues back... with reference to hit back at the revenue with if ever under investigation.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    I was on HMRC's "Thinking of going Self Employed" workshop yesterday and this was covered. We were told the number of rooms calculation for utility bills. The self employed help form for tax states community tax too, but the inspector taking our workshop felt that was possibly taking it a bit far. She also said that as long as you don't claim any proportion of the mortgage then there is no capital gains tax liability. She said you must be able to show the room was not being used for anything else whilst being used as an office to be able to claim utilites - otherwise there was no increase in cost to be claimed. She said that a bedroom being used during the day for office and sleeping at night was fine but a corner of the living room would not be ok.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    TLG, did they mention anything about using a figure of £5 a week?
    Also, did they say whether you need to continually add up your utility bills and divide them, or whether you can work out an average and then just use that figure in future? Are you meant to keep copies of the bills to back up what's claimed?

    I really want to make sure I get this right now, although I'm sure what's 'right' for one inspector won't be for the next.

    Thanks
    Jodie
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    She was quite "relaxed" about the calculation. Said it would probably be about £5 per week. Said that whatever we chose to do, keep a record and be prepared to give our reasoning for it. Her view is that as long as it is reasonable, that the method for arriving at the total is logical and you can provide your basis for the figure, then you should not have a problem. If you can do the above and you get an inspector who does not view it as being right, her view on all of the accounting/tax process was be prepared to stand your ground and appeal if you feel the inspector is being unreasonable.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    Thanks :)
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    I've been on the phone to HMRC :evil: :twisted: :x today re; rates and rent and utility bills etc.



    With regards utility bills, the answer was that you divide the total bill by the number of rooms in the house, ecluding the bathroom, kitchen and hallway. Then say it was 3 rooms, take that third of the bill.
    Then if you use the room as a noffice during the day and a bedroom at night you work out the number of hours spent per period, let's says it's an annual electricity bill. So you sepend every 8 hour day of the week working in therre and the rest of the time you are asleep in there. that's (8hrs x 7 days a week x 52 weeks) / (365 x 24hours a day) = 2912 / 8760 = 33.3%
    So (breath) if you had a bill of £500 for the year, and you had 3 rooms (ex bathroom hall and kitchen) then it's £166.65 times 33.3% = £55.49 for the year.

    (And i thought they were trying to make these things easier)

    As for rent she said you could put through a proportion. She did not know what apportion method you might use.


    As for council tax, first of all she said outright 'no', but then i asked her about BIM46840 - Specific deductions: Rent & rates: Council Tax

    http://www.hmrc.gov.uk/manuals/bimmanual/BIM46840.htm

    And she said that perhaps it was claimable as an expense as a porportion of the total bill. And that there is no blanket rule (except for the original 'no' she had given me) for this situation.

    She said i should just try putting any old percentage down and see if it 'gets through' (!?)




    So why is it that they have such specific rules for utility bills and such vague 'yes/no/maybe' types answers for council tax?



    :? I really don't know what to advise my clients now. Does anyone have suggestions - is council tax and rent etc allowable and what are the methods for dealing with it? :(

    If anyone knows the answer, do they fancuy writing a book with all the answers in it and making a fortune selling it because i'd buy it!!
    :shock:
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    Well all this goes to prove is that they don't their t*ts from their a*ses and you dont get any consistency from one bod to another and they are making 2,150 people redundant in order to save money.....

    According to theirfigures will save £72 million but which will result in losses in unpaid tax of £240 million - where is the logic in that.

    And they are supposed to know about numbers :roll:

    Rant over now......

    Actually to go back to the original question about use of home, presumably their is now an x% chance less of being investigated as there are going to be less people working there :lol:

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    In a recent enquiry, my client was told the opposite. He was told that because he did not have an actual office, that he could claim nothing for use of home. He was also told that he could not claim for use of his garage, because there was also space for his car to be parked. Tricky subject perhaps?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    if you do not have a room set aside solely for business you could only claim for the additional (marginal) cost of heating and lighting that room.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    Not true.

    Read the revised guidance here.

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    was looking at employees working from home, link here http://www.hmrc.gov.uk/manuals/eimanual/EIM32815.htm
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Use of home as office

    Then start a new discussion about employees working from home.

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