Three brothers are directors of a company, currently living in Manchester. The nature of the business is such that they need to run the business from London, and thus will move there. Rather than rent an office and accommodation, their plan is to rent a 3 bedroom flat and use the bedrooms and kitchen for personal use, and the rest of the flat for business use. Other employees will also be working in the flat. The company will be paying the rent, and thus a BIK will arise, divided between the three brothers. The question is how much is allowable as business use.
HMRC's guidance (480) says:
"Where the employee is necessarily obliged to use part of the property exclusively for business, the expense of such use may be deducted in arriving at the tax charge. For example, there may be circumstances in which part of the accommodation has to be reserved for business purposes, such as a showroom. In these cases, an appropriate deduction may be given for tax purposes."
No indication is given of what an "appropriate deduction" would be. I would have suggested square footage, but the client is not happy, saying:
"Allocating the usage based on square footage is simply not representative of reality. All three of the permanent occupants are working on ABC Ltd 24/7, less sleeping hours. Time is a much more accurate measure here. The flat is more like an office with beds in it, than a flat with an office in it. Take a 24 hour period. All three of us spend maximum 6 hours sleeping. Less than 1/3 of the time. Outside of these hours we are at work. 7 days of the week. The engineers will be in the flat for most of the 18 hours also. I will easily be able to show HMRC that we are working these hours, because we are. Based on this, I propose that the benefit in kind that is personally taxable is around 25% and subject to class 1A."