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Homeworking and council tax

Anyone ever seen a council charge business rates for a small home office?

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I am thinking of advising my clients to setup an exclusive use of home as office rental agreement.

The reason for going down the exclusive route (rather than non-exclusive route) is in order not to fall foul of the wholly and exclusively rules.

I understand that this could potentially have capital gains implications and therefore I am unlikely to suggest this as an expense for clients who are not in their "forever home". Those in their forever home are unlikely to trigger a capital gain as they are unlikely to ever sell their home in the first place.

Back to my original question, in the event of an investigation do you think HMRC would expect to see evience that the council has been contacted regarding business rates?

The amount of rent charged would be small, i.e. around £50 - £100 per month and should therefore qualify for small business rates relief.

My clients are generally micro-companies/computer consultants and therefore the office would just consist of a desk, chair and laptop.

I doubt HMRC would be interested in seeing whether or not the home insurers and/or mortgage company agree as this, hopefully, is none of their business. Although I am not sure if I will advise this to my clients with leaseholds as the freeholder may object to the running of a business from their property.

I would then declare the rent together with any expenses and restricted mortgage interest on their self assessment tax return.

Are there any other additional considerations?

Replies (11)

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By Wanderer
17th Jul 2019 07:01

This could come back and bite you. Forever homes hardly ever last forever.

"..... in order not to fall foul of the wholly and exclusively rules.". Why? It's accepted by HMRC that an expense can can be claimed?

Think you are potentially creating more problems than any small advantage you are trying to create.

Thanks (2)
By Tim Vane
17th Jul 2019 08:18

I think you may have misunderstood the w&e rules. You are making a simple thing extraordinarily complicated and difficult. Hammer, meet nut.

Thanks (0)
Replying to Tim Vane:
18th Jul 2019 05:20

Am I right in thinking that you would go down the non-exclusive route?

If the use of the room is non-exclusive surely it would fail the wholly and exclusively rules?

Am I also right in thinking that you wouldn't contact the council and you would recommend rental charges to lease-holding directors?

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By memyself-eye
17th Jul 2019 09:22

Nail, not nut...that requires a spanner!

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Replying to memyself-eye:
By paul.benny
17th Jul 2019 11:18

The full expression refers to using a sledgehammer to crack a nut.

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By 2003bluecat
17th Jul 2019 09:23

Agree with the above - is it really worth the hassle for (relatively) small tax savings?

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Replying to 2003bluecat:
18th Jul 2019 05:09

Depends on the client. There are some clients who are happy for the hassle if it creates a small tax saving. Although many clients probably wouldn't want to bother.

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By stevennoonan
17th Jul 2019 09:33

Council tax is generally not payable when you use a small part of your home as a home office, however, if you start to employ people to also work at that "Small Office" then yes, you could be liable for Council Tax.

As other posters have said, you are creating an unnecessary complication. Surely, the simplest would be the apportionment route? Whereby you apportion the home utilities costs against the rooms size and usage in time?

Thanks (1)
Replying to stevennoonan:
18th Jul 2019 05:06

Limited company directors can only claim 1 of 3 things:
1) Use of home charge, i.e. £4/week
2) Additional marginal utility costs, e.g. extra cost of gas and electric as a result of working from home. This would need to be supported by bills and would be declared as use of home.
3) Rent.

Only sole traders can claim an apportionment of home costs based on room size.

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Replying to GR:
By yorkshirepudding
19th Jul 2019 15:44

1) or £18 per month

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By bernard michael
17th Jul 2019 09:45

Be careful

Business rates are assessed on the rateable value (RV) of the property. If you opt for a commercial ticket the local authority may seek to estimate the RV on the full property, which could mean the property is outside the Small Business system and rates become payable.

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