Blogger
Share this content
0
5
1421

Working from home: SA expenses

Hey everyone,

I am self employed and work from home. During 2011/12 I lived with my girlfriend in a rented 2 bedroom flat and used the second bedroom as my office. I used it continuously from 8.30am - 7/8pm most days apart from Sundays with occasional visit to see clients during this time. The room was still setup as a bedroom but had my desk in the corner and was used in the evening/at night by guests when staying over (for in total probably a few weeks a year). I have read all of the guidance and examples as to apportioning the rent/other fixed/variable costs and had a couple of questions if anyone would be so kind:

1) Should i work out the room area based on the number of key rooms (eg 25% due to there being 2 bedrooms and a large sitting room/dining room/kitchen which i'm classing as 2 rooms) or should i do it based on the exact percentage of the floor space relative to the total area of the flat (including kitchens/bathrooms/hallway etc)?

2) There seems to be conflicting information in the HMRC examples as to how much time you should assign to business use vs domestic. I used the room for 10 - 12 hrs a day 5/6 days per week 50 weeks of the year which works out at about 33% of the total time. Is this what should be used (even though it wasn't used continuously for domestic use when not being used for business, ie it was unused at night for example when guests weren't there). Assuming this is correct then i would only be able to claim 25% * 33% = 8.25% of the fixed costs which doesn't seem like a lot given how much i used it!! this also seems at odds with example 6 on this page: http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm where Gordon claims 8/10 of the fixed costs (but the rooms is more tailored to his business). 

3) Am i right in thinking that as long as it's a bedroom with a desk in the corner and it is used for domestic purposes sometimes then it wouldn't be liable for business rates (as i definitely don't want to get stung by that!)

Thanks so much,

Dave

Replies

Please login or register to join the discussion.

avatar
24th Jan 2013 10:59

Reasonable estimate

All that's required is a reasonable estimate of the expense. The methods are suggested as a way of providing a reasonable estimate.

1) Either should be fine, but most people would go for the 25% route (unless the bedroom is the world's tiniest box room and the bedroom and kitchen/diner resemble rooms from Buckingham Palace, in which case this would not be reasonable).

2) The proportion to use is [time spent for business use] / [time spent for all uses]. If the room is not used for anything other than business there would be no time apportionment, even if the room is not in use for business 24/7. Assuming 12 hours per day, 5 days a week, 50 weeks a year, the total time spent per year for business use is 3,000 hours. Let's say when it is in use by a guest they have the room for 12 hours, and this happens for 4 weeks (28 days) over the course of the year - this would be 336 hours, and the time apportionment for business would be 3000/3336 = 89.9%.

If together these two are reasonable then the fixed costs claim would be 22.5%.

3) Yes - you're not in danger of getting a rates bill!

Thanks (1)
avatar
By deshg
24th Jan 2013 11:26

Thank you SO much for your detailed response, I am incredibly grateful that you took the time to provide such a comprehensive answer. Your answer to number (2) explains where i was going wrong, i thought it was calculated based on the business use time vs it's non business use time, not business use time vs domestic use time (ignoring the times where it's effectively not used at all). That makes a lot more sense!!

So am I right in thinking (using your figures above for example purposes) that i would apportion 22.5% of the fixed costs (which would include rent, council tax and any related insurance) as an expense?

I would also assign the variable costs (electricity; there's no gas) as appropriate (i was thinking about 30% as the flat would have been empty all day every working day excluding weekends otherwise, so all heating/lighting etc during the day mon - fri is incurred purely due to the business?)

Finally I would apportion the relevant amount of my phone bill as an expense (the business related calls)?

I'm not sure whether i can use some of my monthly internet costs as an expense as there seem to be a number of things on HMRCs website saying if it's used for private and business use then you can't claim it as an expense at all? Or is that just for employees working from home? Given I'm a web developer i use the internet constantly for work, far more than i do domestically (although i use it domestically a lot as well).

Obviously there are other specific business expenses (ie web hosting/domain purchaser/external service company costs etc) but does this cover pretty much all of the related 'premises' costs or is there anything i'm missing?

Thank you SO much for your help, i cannot tell you how grateful i am.

Dave

Thanks (0)
avatar
25th Jan 2013 13:08

BIM47820 should help you here - you can see from this that your business proportion of telephone and broadband costs are allowable. This, together with example 4 on BIM47825, should answer all your queries. Fixed costs (rent, council tax, insurance, maintenance) would be allowed 3000/8760 x 25% = 8.5% (3,000 hours out of 8,760 per year). Running costs (electricity, phone, broadband, possibly water?) would be allowed 22.5% as above.

I'd guess that would come to around £1,200 per year (depending on where in the UK you are) which is not excessive for the running costs of a one-man business.

If you still have concerns about putting in claims you think might get challenged it may be best to seek a local accountant's help. From what I can see the approach you're taking is sensible and you'd be unlucky to get HMRC arguing minutely over expenses that may only yield a few pounds of tax - although other members may disagree!

Thanks (0)
avatar
By deshg
25th Jan 2013 13:43

Conflicting information?

Hi Ardeninian,

Thanks again for your detailed reply, although I am now slightly confused :) You said in your first message:

"If together these two are reasonable then the fixed costs claim would be 22.5%"(calculated based on: business time/(business + domestic time) * floor area.

You then said in your most recent message:

"Fixed costs (rent, council tax, insurance, maintenance) would be allowed 3000/8760 x 25% = 8.5% (3,000 hours out of 8,760 per year)" (calculated based on business time/total hours in the year * floor area)

These two comments appear to be at odds with one another as one states the fixed cost expenses would be 22.5% (as it's against the total time the room is used) and one says they should be 8.5% (as it's against all hours in the entire year). The second calculation actually matches the calculation i put in my original post that i was querying as it doesn't seem to match up with Example 6 on the HMRC page.

I am waiting to hear back from an accountant regarding this (as you say it makes sense to clarify what is correct so there's no backlash) but i would love a second (or third!) opinion on how this should be properly dealt with? FYI our rent for 2011/12 was £17,400 (it's in London so very expensive, hence why a few percent either way makes quite a lot of difference!)

Thanks so much for your help,

Dave

Thanks (0)
avatar
28th Jan 2013 12:16

My error

Fixed costs, 8.5%. Running costs, 22.5%. The two HMRC manual pages I linked to are (unusally for HMRC) pretty clear once you read through them.

Thanks (0)