Hey all,
So a current client needs an office. He works long hours as a self employed contractor. He is a remote worker and works primarily in his home office.
Because of personal issues and his house now becoming what is unfortunately close to a care facility for other family members, he needs to get an office.
Because of the care needs of the family, he needs to stay close to home. However the closest offices are a 20 minute drive and quite expensive.
As he works odd hours and sometime very late or very early, he's come up with the idea of renting a house that is close to the family home that a friend of his is putting on the market for rent. The cost of the house is cheaper than getting an office, has more space, and amenities like a kitchen so he can cook his own meals if he is there for a long time.
He can also use the extra space to store files and other furniture for the business and clear some space for the extra equipment needed for the family members' care. He can also sleep there if he really needs and provide a space for his child who is going into their A-levels to work without the distraction of the family home.
In principle I think this is a great idea. It suits his needs better, is cheaper and will help the family out considerably. It will also allow him to earn more money as he is paid by project completion and the removal of distractions at home will allow him more capacity to take on more projects.
What I essentially need help with is, whether or not and how, I can justify this as "Office Rent" and an allowable cost to the business.
He pays the mortgage of the family home already as well as all the bills and would then also be paying the rent plus bills of the house which will serve as an office. The mortgage and all cost relating to the family home is paid out of personal money.
My thinking is that aslong any tax investigator knocking on the door can go in a see that it is primarily an office, it should be ok. But this is a new situation and no-one I have asked seems to know how to go about it.
Any help appreciated. Thanks
Replies (23)
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If it is such a good idea, the tax consequences should be trivial to your client?
There is something to be claimed but I would get it out of your head that your client is renting an office.
Well if he can convince his accountant and HMRC that it's for business reasons, then he should be able to convince his wife too.
I was only joking.
I doubt HMRC will care that he'd be working from a residential premises as opposed to a commercial one, assuming any private use is accounted for properly.
There might be an insurance issue though, in that your clients friend (the potential landlord) will need to inform his insurer that it's being occupied for business purposes.
Planning permission is another point to consider. The fact that it is a residential property rather than a commercial property from a local authority perspective could give rise to issues if he's planning on claiming the majority of costs as business expenses.
Whether HMRC would go down that route for the purposes of a tax inspection I don't know but they certainly use it as a source of evidence for DIY vat claims so it could come into play.
I was only joking.
I doubt HMRC will care that he'd be working from a residential premises as opposed to a commercial one, assuming any private use is accounted for properly.
There might be an insurance issue though, in that your clients friend (the potential landlord) will need to inform his insurer that it's being occupied for business purposes.
Don't try squirming out of your stupid blunder. You were not joking. You don't fool anybody. Better if you owned up and said sorry for the silly comment
I would look into business rates too. He might need to pay both business and residential for a mixed use property.
I'm no expert in this though, so there could be more to consider.
A suggestion - I know of an accountant and separately a solicitor who use one of those big storage places along the motorway and do their work there. Clients are met at a hotel down the road.
Also - one of my clients is working out of a spare room in a local letting agents shop.
20 mins is nothing compared with the 1 hr 20 mins I used to drive to work every day. And the 2.5 hours I still drive every month to my 2nd office.
A relative is using a storage space and she says some people are using them as offices.
I work from an office in my house and I claim a proportion of my costs. Isn't it normal with your clients?
My view is that the new rented property has both private and business use. Business Rates do not apply as it has to 100% business. This was covered by a land Trubunals case. Your client should use the "office at home" calculations to work out what can be claimed. If his vehicle is a Ltd Co then make sure he issues a licence to the company and the company pays rent. I would suggest that this be the same as the office at home figure so that there is no profit from the licence.
Your client could expense a percentage of his total costs (Rent, Council Tax, Insurance, Water, Heating and Light etc) dependant upon how much of the space was honestly employed as "An Office".
In the past, I have had clients using, often, very spacious houses on a part-business/part-private use basis, with no problems.
Even one client who used part of a substantial and beautiful Georgian house in a village as a pharmacy. With no problems, whatsoever.
Came to a problem when he relocated into a much larger dedicated retail shop and the area previously used for retail had to be adopted as the house. Capital Gains.
However in your client's case, I fear his "Business Use" will easily stray into "Domestic Use"!
Daughters studying: client sleeping there; and so on.
Also remember, he may well be hammered by UBR (Unified Business Rates),the local authority questioning change of use from residential to commercial; need to take indemnity for pubic liability etc.
Hm seems we have lost the "edit" facility?
Of course I intended to write "Public" Liability; not pubic, but that's a thought anyway...
Hm seems we have lost the "edit" facility?
Of course I intended to write "Public" Liability; not pubic, but that's a thought anyway...
Pubic liability ... insurance for when you cut your balls shaving.
Check with the local authority its allowed...otherwise they will turf him out...got to have the right terms of use.
I used a house as an office for several years. I didn't put a sign up outside, which would have needed planning permission, I told the insurance co what it was beiung used for etc etc.
You might get busybodies from the TV licence place coming round with their spinning roof racks. They're very odd people. If you respond to their letters saying you don't have a TV, they come round to check. If you don't, they come round to see why you haven't replied.
One of them asked me why I just didn't reply to their letter and I said to him "it's a waste of a stamp, you come here anyway." Lunatics.
Most of the intended usage you describe is 'wholly and exclusively for the purposes of the trade' and therefore qualifies as business expenditure. However, providing a haven for his teenage daughter to study for A Levels, and for himself to sleep does not qualify. So some apportionment will be necessary, probably on a crude 'number of rooms used for business-v-number of rooms for non-business purposes' basis. In the event of HMRC enquiry, it will help convince investigators that it really is his office if he gives it as his business address to clients, banks etc. If he claims it's his office but all his business mail still comes to his home address, HMRC may find it a bit difficult to swallow..