|
Hours
of business use per month |
Flat
rate per month |
|
25 – 50 |
£10 |
|
51 – 100 |
£18 |
|
101+ |
£26 |
So, in HMRC’s eyes, I am entitled to a deduction of £120 a year for the use of home office space (or similar), but basically only so long as I spend at least 25 hours a month working from home. Working more than 25 hours a week – broadly full time – from home gets me the princely sum of £312 per year.
Working from home may be cheap, but it’s not that cheap.
The following guidance assumes that the claimant is not using the cash basis of assessment for tax purposes, as the rules work differently.
‘Wholly and exclusively’
Business expenses are allowed if incurred ‘wholly and exclusively for the purposes of the trade’. This is a cardinal rule; however, there is a further point:
‘Where an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade’ (ITTOIA 2005, s 34).
When I claim that 75% of the use of my car is for business purposes, I am not claiming that everything forward of the rear wheels belongs to the business (kids travel in the boot!) but that, on average, three out of every four journeys I make in the car are exclusively for business purposes (strictly, journey distance would also be a factor).
Applying those principles, I do not have to use a room in my house exclusively for my self-employment, just so long as when I am using it for business purposes, that is all it is being used for.
The costs you are allowed to claim
It is worth bearing in mind that HMRC does have guidance on how to make a more comprehensive claim for using one’s home in the business, in its Business Income manual (at BIM47800 et seq).
If you make it to the examples at BIM47825, you may well find it strange that almost all of the examples result in a claim of around £200 a year or less!
HMRC’s guidance nevertheless includes the following potentially allowable costs:
- mortgage interest (or rent paid to a landlord);
- council tax;
- insurance;
- repairs;
- cleaning;
- heat, light, and power;
- water; and
- telephone and broadband (unless already/separately claimed as a business expense).
If those annual costs are sufficient to make you blanch, then just £120 a year as a standard use of home deduction, or even £312 a year, is likely to make you feel more than a little aggrieved.
How to apportion?
This is the key issue. HMRC likes to assume that use of part of the home is occasional and that when a room is not being used for the trade, etc., then it is being used privately. That may be appropriate when using a dining room to do the books for a couple of hours in an evening, but not when a room is given over to the business – typically a home office, made out of a bedroom, study, or utility room.
When I step outside my home office, for example, it does not magically transform back into a bedroom – I know this because I have checked. I am reasonably confident that it remains a home office while I am out visiting clients, and even overnight when I am snoring away next door.
- For expenses, such as mortgage interest, council tax, and insurance, it may be appropriate to consider the number of rooms in the house and apportion based on the number of rooms used for business purposes. Traditionally, the kitchen, bathrooms, and similar ‘ancillary’ rooms are ignored (I think a modern ‘kitchen diner’ might have to be included, however, where it could be considered a usable ‘living’ room). This approach might be challenged if the room given over to business use were quite small in comparison to the others: it might then be more appropriate to drill down to respective floor areas. The more precise approach could even be beneficial, where the home office is particularly large when compared to the other living rooms.
- Repairs and cleaning expenses could be dealt with in different ways. Re-tiling the bathroom, for example, would not be deductible as it has no bearing on your office space (unless you use your bathroom as your office!). But repairing the roof could be apportioned, as with mortgage interest, as the roof applies to the building as a whole. Re-decorating the home office itself would be wholly allowable unless there was significant private use of that room.
- Heat and light should reflect actual usage. But this may not necessarily result in a small claim. If I work from home through the winter months that may be the only reason the house is heated during the day, while the rest of the family is out at work or school.
- HMRC thinks that most businesses run from home do not use water. On reflection, I think this is probably fair unless perhaps I am a hairdresser or dog groomer.
- Telephone and broadband costs are often claimed separately anyway, with an appropriate restriction for private use (as an aside, they may be claimed in addition to the flat rate amounts tabled above).
Example: Apportionment of business costs
Gordon, an architect, uses
one of his three bedrooms as a permanent home office – private use is
negligible. The house has three bedrooms and two reception rooms, two bathrooms, and a kitchen. The five living rooms
are broadly similar in size. He apportions costs as follows:
The higher proportion used
for electricity reflects that Gordon heats and lights the house only for his
benefit while working during the day in the winter (business use of water is
negligible). The family make quite
extensive private use of the internet, so a smaller proportion of that expense
is appropriate.
Not EXCLUSIVE business use
It is unwise to give a room over 100% exclusively to business use because it can risk a proportion of capital gains tax only or main residence relief (commonly referred to as PPR) being disallowed to reflect that part of the property has been used exclusively for trading purposes. But occasional private/domestic use should be sufficient, even if it does not substantively encroach on the proportion of business use of the room.
Likewise, business rates are not usually considered a risk, except where clients/customers regularly visit, there are employees who also work there, or the property has been part converted, into (say) a salon. If any of these points do apply, then you should seek advice on your business rates position.
Practical Tip:
There is scope potentially to claim significantly higher costs for business use of one’s home than the guideline figures provided by HMRC. It stands to reason, however, that the larger one’s claim, the more rigorous the calculation should be.
