I'm preparing sole trader accounts for a home based beautician for the first time and just wanted to clarify that my understanding of the calculation isn't way off the mark. I would expect the figure to be reasonably consistent with previous years (prepared by another firm) but my figure is way higher.
The client has a room in the house set up as a dedicated 'salon'. I've not been to the house (facials and manicures not being my thing) but it is on Rightmove at the moment and it's blinding obvious from the pictures there a room is dedicated to the trade.
I've had a read of BIM47820 and it seems fairly clear to me that an appropriate proportion of mortgage interest, council tax, gas, electric and water are allowable deductions.
The property has four bedrooms, two living rooms and a kitchen/diner. I've therefore apportioned 1/7 of the total household bills as a use of home deduction. Problem is this figure is 4 times higher than that deducted in previous years.
Should I be assuming that as the 'salon' is in use for only, say, 6 hours a day we can only take a deduction of 6/24 of the 1/7 of the total bills?
Replies (6)
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Have you read all the pages in BIM47800?
These will give you more background. What I always do is to refer clients to 820 and 825 (the examples) and let them have a go at calculating it based on the closest example. In particular, if the room is only used as a salon, then the non working hours are irrelevant it's just the floor space that's used (Example 2).
The risk here however is that exclusive business use will create a potential CGT problem on sale, so best to confirm whether it is, in reality, "exclusively" business.
This used to give me problems in the past
But as Paul says, you calculate the proportion of the room on the business use divided by the total use.
I have a dedicated office but I always watch a bit of TV in the room to avoid it being exclusively business use.
kitchen/diner
I think part of the kitchen/diner should be included as it's not exclusively a kitchen.
square footage/ or square metres
For my own home office when I traded as a sole trader I had all the room sizes from the particulars when we purchased the house. I took the proportion as the size of my study divided by the total property internal size. Number of rooms always seems wrong as they are usually not all the same size. I find it really strange that in large parts of Europe square metre sizing is the norm, in Sweden you have a website, bopriset, that records the average selling price per square meter in your geographic area and by house type, and properties are always marketed with the sizes given, yet in the UK we seem to concentrate on number of rooms (ignoring their size). In commercial property everything revolves around rate per sq ft/ sq metre (choice seems to go with age) so proportion of total size rather than fraction of total number of rooms appears to me the most logical approach.