Following on from our previous post about How to be an Accountant’s Perfect Customer, family-friendly accountant Amy Taylor explains to do’s and don’ts when claiming expenses for working from home.
If you use part of your home for business, you can offset utility expenses and mortgage interest against your income - but beware of Capital Gains Tax implications!! Say you use 1 of the 6 rooms in your house solely for business and claim one sixth of all your utility bills and mortgage interest as an allowable expenses, when you come to sell your house, one sixth of any gain you make on the sale of the house could be subject to capital gains tax at 18%. There are allowances that could reduce the amount of any capital gains tax to pay depending on your circumstances and you should consult an accountant for more details.
A more common scenario is that you use part of your house for business, part of the time. For example, you use the dining room during the day, and the family eat there in the evening. In this case, you will only claim a proportion of the costs of using that room and therefore will not suffer Capital Gains Tax on the sale of your house. HMRC have given us some examples of how to calculate how much of your utility bills and mortgage interest (not capital) that can be offset against income at http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm. These calculations are based on the amount of the house used for business, and the amount of time the room is used for business.
If there is only minor use of your home for business, e.g. writing up your books, you can put in a reasonable estimate, currently £3 a week, or £156 a year, excluding any periods where you are on holiday without risking investigation by HMRC.
You can also claim expenses for working from home if you are employed, but there are many rules surrounding this, such as you having no other option but to work from home, for example if your employer is in Germany and there is no UK office, etc,.
For any further guidance on accounting and taxation services from a family friendly accountant, please email amy@tayloraccountancy.net. Amy is based in Potton, Sandy, Bedfordshire, but also deals with clients across the UK remotely.
Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy
Fantastic information. I knew that if you claimed fully for a room that you were liable for capital gains tax, however I had not realised that you could claim for part use of the room. I’ll have to look into this further before submitting this years tax return!
Our office is also the music room so we have dual use to prevent any capital gains issues when we come to sell.
I’m so lazy about stuff like this…
Hello from Russia!
Can I quote a post in your blog with the link to you?
Hi Amy
Great article.
I understood that HMRC had removed the CGT threat on using a room solely for business bank in June 2008. Have I got that wrong?
I’m also a bit confused about how much you can claim for variable costs like gas, electricity and cleaners if I have a room that’s used part private and part business. I understood that you don’t use the %ge of floor area basis to work out what’s allowed – as they are variable costs- and that you must estimate the amount you can claim on a usage basis. But how do you do this in practice for gas and electrity? How do you calculate the split?
I also read on other forums that HMRC does allow you to work out allowable gas and electricity using the %ge of floor area basis – is that right?
One final question. If I use a room for 5 hours for business and 2 hours personally and it is 10th of the area of the house do I claim
5hours/7 hours*10% = 7.1% of the bills
or
5hours/24 hours*10% = 2.1% of the bills
In other words is it (business hours/24 hours ) or (Business hours/hours room is actively used). As you can see, you can claim a lot more if you are just using the actively used hours as the denominator in the formula. I was told – at a startup fair – that you use 24 hours as the denominator for fixed costs (mortgage interest, council tax etc) and active use of room hours as the denominator for variable costs (i.e. gas, electricity). Is this good advice or out of date
Thanks so much for your help
Best wishes
David
P.s is there a definitive article on this anywhere
Dear David,
Thank you for your comments. For further examples and references that might help you, please look at http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm which gives some specific examples, and http://www.hmrc.gov.uk/MANUALS/bimmanual/bim47820.htm for the specific guidance. Hope that helps, if not give me a bell.
Amy