My client is employed full time (HR taxpayer). He is also a pilates instructor, T approx. £5k p/a. Some classes are run from a rented studio, others from home. In 13/14 40 private sessions were run from home. He rents a house in London, the home costs are £27k p/a (rent, utilities, council tax etc) One room (out of 4 exc kitchen/bathroom) is used as a studio and there is a large piece of equipment for pilates kept in the room which means the room can be used for little else. The business is small and without a use of home claim, made a taxable loss of £200.
The use of home claim feels totally disproportionate to the size of the business. But claiming £10 per month feels far too low.
What would you do ?
Many thanks
Replies (24)
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But potentially expect HMRC to investigate
Although you use 1/4 of the house for a studio, HMRC won't like this as it isn't used 24/7 as a studio. If private lessons are four days a week they would expect you to claim 4/7ths of the 1/4.
How has he generated £5200 in non-accommodation costs in providing 40 hours "training", as a matter of interest?
Is 40 hours in a year sufficient to make a 24/7 claim for pro-rated household expenses?
Unless there are plans for the activity to increase, if I was HMRC I would be looking very closely whether this was a business at all.
But use of room per OP is more
How has he generated £5200 in non-accommodation costs in providing 40 hours "training", as a matter of interest? Is 40 hours in a year sufficient to make a 24/7 claim for pro-rated household expenses? Unless there are plans for the activity to increase, if I was HMRC I would be looking very closely whether this was a business at all.
The fact that the room is used 24/7 for storage, per the OP, surely gives some support to the claim for a 24/7 claim, however it is possibly not enough?
. It can really only be supported if he never uses the room in a personal capacity, surely that is unlikely, he must himself practice what he teaches and therefore surely uses the equipment/ room for his own personal training thus giving a non business use part of the time
Floor area
What % of the floor area of the property is the home studio?
@ Peter, are you looking to invite an enquiry?
So be it
What % of the floor area of the property is the home studio?
@ Peter, are you looking to invite an enquiry?
If the facts support the claim then the enquiry should reveal that.
Or . . .
What % of the floor area of the property is the home studio?
@ Peter, are you looking to invite an enquiry?
If the facts support the claim then the enquiry should reveal that.
. . . not.
It is not really a 27 January question
Is it?
All of the costs would have been incurred in any event. HMRC will only entertain a claim based on the proportion of time that the proportion of the property in question was actually being used for the purposes of the business.
Does he use his pilates studio and equipment personally? And are the lessons perhaps just a means of subsidising the cost of them?
Is it actually an enterprise pursued in earnest on sound commercial principles?
Why are you not claiming capital allowances on the pilates equipment?
How much time is spent on the self-employed business?
If it's only one or two hours per week, I think it would be risky offsetting the losses against his employment income.
More info about number of hours worked, and the fees achieved per class, would allow us to offer more relevant advice.
As Peter says
Is there a realistic prospect of turning a profit is a good place to start. You said he made a loss before any home costs. I'd asked in an earlier response how this loss arose, ie what costs.
"I struggle with the balance of what is a trade and what isn't."
40 hours?
Its probably 4-5 hours per week. He has full time employment. The group classes are at weekends at a rented studio. The private sessions average under 1hour per wk.
Nature of the business has changed - when it was set up it was intended to be a FT job (hence we claimed AIA on the equipment for the home studio. Plans changed.
I struggle with the balance of what is a trade and what isn't. He couldn't not register a 5k turnover business...but if he does keep it as a trade, HMRC could challenge the validity of the business. Doesn't seem fair somehow.
If he's only doing 4-5 hours per week he must have only done 9/10 weeks work to have 40 hours.
Surely he can't have a full years use of home calculation at that?
HMRC challenge
If HMRC do challenge the business is being undertaken with a view to making a profit then they would not allow any loss to be set off against other income.
The client can disagree or accept the decision.
Silly?
How do you decide whether claiming an expense is silly or not?
If you paid the same amount for a person to take classes would that be silly? Would you not claim that expense?
Storage
The room is being used to store equipment.
If he rented premises to store equipment it would be a reasonable cost so it should be if he used his house.
Be subjective
You've said that the 'business' has very small turnover which I assume due to the nature of the work that the majority of this comes from the group lessons.
I would ask the client what the commercial cost of renting for the hours they do the personal lessons even though they wouldn't pay these. This can then be used as evidence to back up any use of home claim. I don't know the rates in London but I'm pretty sure a church hall etc wouldn't charge £27K for 40 hours rental but the £1,350 apportioned cost wouldn't be far off the mark in the north west.
Lots of Estimates floating around
Use reality as Portia said. Room 1 Total time is 168 hours/week how much is for business and how much is pleasure and how much empty. Take Floor Area as a proportion of house (all floors) x costs xbusiness use/(business + private)
It's the man down the pub again!
I had an enquiry from potential client yesterday. He's been told/tells me that he can claim 50% of home running costs. When questioned, it appears he spends 2 hrs per week raising invoices and writing up records.
I asked if he spent more than 2 hrs per week at home, not writing up records, and if so, why did he think he was entitled to claim 50% of the costs as business costs.
He didn't appreciate my humour. Too bad!
Closed for commenting
Hello,
Due to recent, now edited comments on this thread I have decided to close it for commenting.