An anonymous AccountingWEB.co.uk member who is a subcontractor in the construction industry asked if there was anything that they could claim against household bills,in a query on 9 January [1].

The tax case of Horton v Young 47 TC 60 is very important in these circumstances, as it involved a subcontracted bricklayer who travelled daily between his home and the various building sites he worked at. He mostly worked on each site for about three weeks and his contracts were all verbal and with the same main contractor. He wrote up his books and kept his tools at home. The court decided that his travelling expenses between home and the various sites were tax allowable.

Although that case was about travelling expenses, it established the principle that use of home could be claimed if the subcontractor works on various sites and actually uses their home for business by writing up the books there and keeping tools at home. HMRC does not like subcontractors because of their perceived abuse of the informal economy, and one wonders if Horton v Young would be decided differently if heard today. For instance, there was no written contract in that case and we now have a very restrictive CIS scheme.

As far as the current query is concerned, he or she needs to make sure that the self-employed status is watertight, and that the home is actually used for business purposes. Incidentally, it is important for any subcontractor to keep a reasonable set of books and retain receipts for materials, motor expenses and other items. If possible, a valid contract for services should be obtained via the main contractor. I will not go into the intricacies of the CIS scheme, but another vital function is to save tax for the half-yearly payment unless tax is being deducted at source under the CIS scheme. Retaining a professional adviser will almost certainly be worthwhile, as the subcontractor will be within the self assessment regime.

As to the claim itself, the subcontractor has to assess how much of the home is used for business, and for how many hours a week. In the past, taxpayers used to make a round sum claim of £5 a week, for example, which was rarely queried by the Revenue. That could still be relevant in this case.

However, the situation has changed in recent years. As Nichola Ross Martin helpfully pointed out [2], we now have an official mandate for claiming for use of home. This is set out in the HMRC Business Income Manual between BIM47805 and BIM47825.

Sensibly, she refers to the different types of business home user. Where there is significant use of one room then a proportionate claim can be made in respect of:

• Light and heat
  
• Telephone (including line rental)
  
• Rent
  
• Council tax
  
• Mortgage interest
  
• Insurance
  
• Repairs to business equipment (e.g. a computer)
  
• Capital allowances on business equipment, subject to private use restriction.
  
• Cleaning
  
• ISP/broadband cost, according to use.
  
• Redecoration and repairs - both internal and external. (Redecoration of the office itself can be claimed wholly).

One cannot claim for water rates, unless the business uses water. Presumably a proportion of sewerage rates can be claimed.

Apportionment may be made on the basis of:

1. Number of main rooms in the home
   
2. Or by square metre
   
3. By electricity meter
   
4. By water meter
   
5. By percentage of actual use

The examples in BIM47825 are helpful and illustrate that it may be better to just claim a modest round sum figure, except in cases where the individual works full time at home. This would seem to be relevant in the case of the subcontractor.

One must emphasise that all the above relates to self-employed persons and not to employees, for whom different rules apply.

At the other end of the scale there’s the case of the accountant who worked full time at home in Gazelle v Servini SpC48. He claimed £16,000 against tax, and the tribunal and HMRC agreed that £3,200 was a reasonable figure.

I would recommend that subscribers faced with a potential claim for a client research the HMRC Business Income Manual and Nichola’s articles on this subject. Once again this is a small, but important, part of the tax regime.

Finally, it’s worth remembering that unless the work at home is obtrusive, any threat of business rates is unlikely. A case concerning an HMRC employee who worked at home has established this. Also, the complete use of one room at home (which should be avoided) could produce a proportionate capital gains tax charge on the sale of the home.