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Tax Enquiry into Use of Home as Office.

Tax Enquiry into Use of Home as Office.

My client, a self-employed lawyer with no staff, works from home and has claimed house overheads of about £5,000 in the annual accounts. The amount is based on actual expenses less calculated private use.

Ignoring both kitchen and bathroom, even though there is a degree of business use (e.g. making drinks and providing washroom facilities for clients), the house has a total of 8 rooms plus a hallway, which is counted as only ½ room, although it not only provides access to the business rooms but also contains a bookcase for some of the business library. Therefore, perhaps the hall should be counted as a whole room?

6½  (6 rooms plus the hallway) of the 8½ rooms are used for business which equates to 76.47%. Since none of the rooms is used exclusively for business purposes, an average private usage of 10% has been applied and the result arbitrarily rounded down to 60%, which equates to an overall private use percentage of 21.54%, which we feel is more than fair given that this is a single occupancy property.

The client basically lives out of his lounge and bedroom, neither of which has business use, plus the kitchen and bathroom. Most of the time, he is working in one of his 'offices'.

The Inspector of Taxes is not convinced over the claim and has commenced an "informal" enquiry. He believes that "the purpose of a home is to provide warmth, shelter and comfort to maintain the personal health and well being of its occupants."

I have pointed out that his interpretation could equally be applied to the workplace, citing The Workplace (Health, Safety & Welfare) Regulations 1992.

First he requested a detailed floor plan of the house and when told there was none, he then asked for the overall area of the house, the area of each room and the time spent on business in each room. His reasoning is that he "wishes to be satisfied with regards to the methodology in calculating the apportionment rate".

Surely the simple method I have used is acceptable without the necessity to resort to room by room measurements?

I am dubious about the direction he is taking by requesting to know how much time is spent in each room on business as (ignoring when it is being used privately) the room is still available whether it is actually in use or not. One doesn't actually have to be in an office for it still to be an office.

Another analogy is the claiming of motoring overheads whether the car is actually in use or laying dormant in the garage.

If anyone has had similar experiences or have thoughts or case references to impart, your input would be greatly appreciated.

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By Anonymous
11th Jan 2010 15:32

you do the math

surely you'ved claimed for too many rooms here?

8 rooms in house, take out kitchen, bathroom, lounge and bedroom = 4 rooms for business so how do you have 6??

and why does he need 4 rooms for business if its just him and no staff?? what are the rooms used for?

I would suggest he probably has one room as an office and possibly has a cuppa with clients over the kitchen table.

I can see why HMRC are looking in to this, its seems a bit far fetched to me

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11th Jan 2010 15:51

When you say.....

"which equates to an overall private use percentage of 21.54%, which we feel is more than fair given that this is a single occupancy property."

I am not surprised HMRC are enquiring!!! A p/use adjustment of NEU of 21.54% would ring alarm bells with any officer.

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11th Jan 2010 15:55

Here's the guidance

The guidance in the Business Income Manual was reissued about 2 years ago now, and was widely regarded as becoming more generous as a result. Even then, I think you have over-egged it a bit here!

Here is where to go for the HMRC official view on how much you can claim :

Index to guidance on office use of home BIM 47800

Apportionment - principles BIM 47815

Examples (very good) BIM 47825

I would also suggest that you "up-end" your logic. Claiming it all subject to a private use adjustment implies that it is a business expense but with some private element. It isn't. Although you may end up with a similar arithmetic result, it is unwise to start from this principle as you undermine your argument. It is private expenditure which has been made use of for business - this fairly & squarely puts "non-use" into the private category not the business. The guidance set out above is fairly generous but you will see that it does rely on a fairly detailed and scientific consideration of the use of the property, and if you can't or won't do that you really risk the whole lot being disallowed as it is essentially private expenditure in the first instance.

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By SimonP
11th Jan 2010 16:05

Thanks but Maths was always my strongest subject. Reading too.

With respect, I suggest that Mr Anonymous re-reads the original post. It clearly says there are 8 rooms IGNORING BOTH KITCHEN & BATHROOM.

YOU do the maths.

As to WHY he needs those rooms is surely irrelevant? It is whether he actually does use them for business that counts and the answer to that question is 'Yes he does'.

In actual fact, he installed desks and work surfaces so that he can be working on several different cases at the same time without needing to tidy each one away if he switches jobs. He even has computers in several rooms to assist him. In addition, he also sees clients in a separate room so that work is always kept confidential.

I don't think even us accountants would confer with a client "over the kitchen table". How undignified and unprofessional.

Having visited the property myself, I am perfectly satisfied as to the authenticity of his claim. If it wasn't a house, it could quite easily be viewed as a suite of offices. He said that he bought the property because it was an ideal place to work from and I can see why as the residential area is separate from the working area.

As an aside, he also has Home Business insurance in place.

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By mwngiol
11th Jan 2010 16:12

Kitchen & bathroom

Why would you ignore the kitchen and bathroom? Are they not rooms? Surely there are therefore 10 rooms?

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11th Jan 2010 16:21

With great respect Simon

Why be so abusive to the people who have replied to your post?

You asked for advice/opinions and have got them - one from a very well-respected poster indeed (not me!!)

I appreciate that you don't like or agree with the replies you have got but they have probably given you the answer as to why HMRC are persuing this enquiry.

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By Anonymous
11th Jan 2010 16:30

Take care Simon

and take heed of what has been said. He purchased a house not a suite of offices so start by saying........ this is his private dwelling for which he is using part of it for business purposes. Once you have got that fixed in your brain it will be much easier for you to come to the correct answer.

 

 

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By SimonP
11th Jan 2010 17:10

Was I abusive? It wasn't intended as such.

Sorry if it was read that way by anyone.

Liking or not liking the replies doesn't enter into the equation otherwise I wouldn't have asked for opinions. I am extremely grateful to those who have taken the time and trouble to post responses. Thank you very much.

Maybe I have got my head stuck up my backside over this matter but doesn't it all revolve on the facts? If it is a fact that 6 rooms out of 8 rooms are used primarily for business, then shouldn't the expenses be apportioned in a similar ratio, assuming the room areas are fairly equal?

It is the time spent in each room which bothers me though. A person can only be in one place at one time but his work can be in many places at the same time, even 24/7.

Am I missing something here? Am I being unreasonable?

 

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11th Jan 2010 17:27

Absolutely on the facts

The reality is that you may numerically come out with a similar answer if you follow the guidance. It does appear that he uses the premises extensively for the purpose of his business - this is rare, but yes it can happen, and the computation is based on the facts, as you say.

I just wanted to point out that the officer was likely to give you some pretty serious argument if you start out from one end rather than the other (if you follow) Even though we mathematicians know that they will meet in the middle!

I suggest you work on the basis of the architect in their examples, noting the difference between fixed and variable costs - then present the figures to the officer with references to the page of the manual - they will be familiar with it and will probably be working to that model so you will be able to see the areas of disagreement. (Note that his questions give you a very clear steer that he is trying to follow his own internal guidance - quite properly) You may then have the pleasant surprise that your numbers do stack up based on HMRC's methodology.

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11th Jan 2010 18:30

Keep it simple

First you cant exclude the bathroom & kitchen. He heats and lights them, just like any other room.

Its a 10 room house.

He presumably uses one room as an office - and THAT is what HMRC would accept as "standard".  In other words 10% of costs. 

You cant claim for the kitchen just because he makes the odd client a cup of tea. 

Ignoring storage - your client works alone so can only be in one room at a time.  Therefore if there are 10 rooms in the house he cannot possibly use more than 10% of the total for business.

If he uses a second room as say purely business storage, and, you can provide HMRC with a photo of the room lined with filing cabinets, you might just get away with that too - maybe.

 

 

Clearly the taxman thinks you're pushing your luck, hence his questions.  I guarantee that by arguing that you should claim 20% when your client sells his house, HMRC now have a file note reminding them to claim 20% of the profit as capital gain.

 

 

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12th Jan 2010 00:03

Answer the question asked by HMRC

“As to WHY he needs those rooms is surely irrelevant? It is whether he actually does use them for business that counts and the answer to that question is 'Yes he does'.”

HMRC won't accept that as an answer. They would look at the information provided and if you won't provide adequate information you won't win.

Anybody who comes up with something unusual and say that it's because they prefer to jump from room to room will be treated with suspicion. A more sensible way of working would be to have one computer and to have surfaces that can be placed on a desk and taken off and stored in a racked storage area. One room is adequate for this work. The storage area could have a door or a cover. Anything more is inefficient and doesn't justify the excessive claim.

By the way, it's not usual to claim for kitchen and bathroom but if you can give a good case there can be exceptions.

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12th Jan 2010 13:36

Informal enquiry

Please was does this mean?   If it is an enquiry then say so if not what is it? As I understand the current SA system an inspector has to open an enquiry to ask questions about a return.

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12th Jan 2010 18:11

Disagreeing slightly with a couple of replies

If you look at the examples produced by HMRC one of them - the architect I think - seems to be able to charge for an office even though he does much of his work on site. The room is "available" to work in as an office. In the same way, one of my clients has two rooms in his house which he uses for work, one as an office and one as a dark room. He can't be in both at the same time, but that does not prevent them from being set aside for business use - either wholly or partly.

One further old chestnut which has not been mentioned and I'm sure you have considered is the CGT position. Some of the HMRC examples give quite a rosy picture of chargeable expenses and CGT exemption because the room is at some time during the year not used for business but used "as a spare room". This won't be the case for the OP's guy I guess, but might be relevant to other readers. It's really worth re-reading HMRC's guidance on this as it is really helpful.

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13th Jan 2010 10:36

Time used

I think the advice given to look at the Revenue Manuals is the best piece given so far as it is clear guidance on how to correctly calculate the use of home allowance.

In one of the examples it even states the Mr X calculates the amount using the guidance but comes up with a figure that is unreasonably high and so reduces this figure.

As the Inspector has indicated in his request you have failed to take into account the amount of time the rooms are actually being used for the purpose of the business and the fact that he can only be using one room at a time even if his work is spread over a number of rooms. 

Remember you have to look at the business use of the expenditure so for example looking at the heating cost it is only the cost of heating the room he is in when he is working. Just discounting weekends would reduce your expense by 2/7 although I expect your client will tell you he is a workaholic who never stops. 

If suspect that when you recalculate the business/private use split will at least be reversed to around £1,000 if not lower and they will then look to go back a number of years if the claim has always been the same.

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By Anonymous
13th Jan 2010 14:40

Question for Rebecca

Following up on your example of a client that claims for two rooms which are always available for business use. Do you think the different purposes of the two rooms is what allows the claim for both? Presumably the dark room cannot be used as an office and vice versa. Thus both rooms HAVE to be available to achieve the two different business purposes. This is in contrast to the OP where all the rooms appear to be used for the same purpose. If there is only one business purpose then surely only one room can be claimed to fulfill that purpose, even if the client prefers to spread themselve out a bit. The multiple rooms are a personal choice of how to work, not a business requirement per se.

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By SimonP
13th Jan 2010 18:52

When is a suite not a suite?

Some posts have questioned whether it is correct to claim for rooms which are not inhabited all the time. I certainly think an office is in use, whether anyone is in the room or not, if work papers are spread all over the desk.

If the criteria for claiming tax relief is based on whether a room is in occupancy, what happens to those offices throught the country where a number of rooms may be empty for one reason or another? Maybe someone is on holiday, been sacked or it is just surplus to requirements?

No doubt several readers of this post will immediately think about the empty room(s) at their own workplaces. So, should the overheads be non-deductible in respect of those rooms?

And what if those rooms are in use regularly but by part-timers? Should the cost of overheads be restricted according to the hours those people work?

I really don't think so.

Some may argue that this is a residential property and should be treated differently but I don't see why. The client gave up a suite of offices in the town centre and transferred his base of operations to a different building, one where he also resides. It was a considered business decision as it not only gave him more freedom to work but also reduced costs, which, in turn, produced more profit and higher tax bills.

It has been suggested that only one room is necessary to do the work required. If it was all one case, remember he is a lawyer, then possibly the poster might have a point but effectively, each case is a totally different contract and therefore, I ask why must each contract be performed in the same room as all the others, if it is not expedient to do so?

How is this any different from, say, a B&B [which is someone's private house] except that in a B&B the guests' rooms are unlikely to have any private use, whereas here there is a 40% private use adjustment for each room used for business. In the example of the architect, BIM 47825, he is only adding back 25% private use for the room he uses.

Also, capital gains does not enter into the equation since no room is used 'wholly & exclusively' for business purposes and there is substantial private use (40%) of business rooms.

To respond to the poster who mentioned the word 'workaholic', I have to say that it is not uncommon for me to see emails sent by my client timed in the early hours of the morning.

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13th Jan 2010 19:08

Two offices one person

I do think this is quite a knotty area, and I am quite prepared to go along with what HMRC thinks as this would be a very unlikely one to go to appeal on. The guidance is good and clear and not at odds with any general principles, so I think it is pretty sound. Here's what it says :

BIM 47810 (wholly and exclusively test) : (Verbatim extract) "Wholly and exclusively does not mean that:

business expenditure must be separately billed, orpart of the home must be permanently used for business purposes and not used for any other purpose at any other time.

Wholly and exclusively does mean that when part of the home is being used for the business then that is the sole use for that part at that time (my emphasis). Thus if the part of the home used for business purposes is also, at the same time, used for some other non-business purpose, no deduction is due.

The question is whether there are periods when part of the home is being used solely for business purposes. If part of the self-employed person’s home is set aside solely for business use for a period (my emphasis), they can claim as a deduction the costs they incurred on that part during that period."

This does seem pretty clear to me that the room being set aside for business use for part of the day brings it into claim, as opposed to the occupation of the room.

BIM 47825 (examples) : Example 6, Gordon the architect supports this view. Gordon makes the room available from 9 to 5 each day. He uses the room for an average of 4 hours a day as the rest of the day is spent on site visits. If you read the example in full, you will see that the 8 hours and 4 hours drive different parts of the apportionment exercise - look back a few pages in the manual for the rationale between fixed and variable costs.

So in summary, yes, I do support the claim for more than one room for a single claimant. I recognise that in reality the officer may challenge a claim as extensive as Simon has made, but I suspect that Simon has enough material here to make an excellent case on his client's behalf - albeit possibly reducing the claim he has made somewhat to reflect the guidance. There may be one or two little bits he has omitted to claim for which might bring a little back, but in the end he can now present the best possible case and decide how far to argue it. His client may decide that an appeal to the Tribunal is not worthwhile, but I guess that will depend on the numbers involved.

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13th Jan 2010 20:05

Apportionment

“Some posts have questioned whether it is correct to claim for rooms which are not inhabited all the time. I certainly think an office is in use, whether anyone is in the room or not, if work papers are spread all over the desk.”

Yes, but what expenditure is incurred and for what good reason?

“If the criteria for claiming tax relief is based on whether a room is in occupancy, what happens to those offices throught the country where a number of rooms may be empty for one reason or another? Maybe someone is on holiday, been sacked or it is just surplus to requirements?”

We are talking about a home office here. It’s rare of owners to get sacked. If it’s surplus to requirements of the business it should be treated as a residential part of the home.

“No doubt several readers of this post will immediately think about the empty room(s) at their own workplaces. So, should the overheads be non-deductible in respect of those rooms?”

I certainly am not one of those people who has an empty room which I am claiming to have business use and none of my residential rooms are empty.

“And what if those rooms are in use regularly but by part-timers? Should the cost of overheads be restricted according to the hours those people work?”

Yes, see example 4 http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm

“I really don't think so.”

I do.

“Some may argue that this is a residential property and should be treated differently but I don't see why. The client gave up a suite of offices in the town centre and transferred his base of operations to a different building, one where he also resides. It was a considered business decision as it not only gave him more freedom to work but also reduced costs, which, in turn, produced more profit and higher tax bills.”

If there was no residential use there’s no apportionment.

“It has been suggested that only one room is necessary to do the work required. If it was all one case, remember he is a lawyer, then possibly the poster might have a point but effectively, each case is a totally different contract and therefore, I ask why must each contract be performed in the same room as all the others, if it is not expedient to do so?”

I’ve given an example how your client could do the work from one room easily. If he chooses not to do something rationally then he has to accept the apportionment will reflect that.

“How is this any different from, say, a B&B [which is someone's private house] except that in a B&B the guests' rooms are unlikely to have any private use, whereas here there is a 40% private use adjustment for each room used for business. In the example of the architect, BIM 47825, he is only adding back 25% private use for the room he uses.”

There’s no 40% private use adjustment for each room.  There’s a 40% private use adjustment for the house.

“Also, capital gains does not enter into the equation since no room is used 'wholly & exclusively' for business purposes”

Correct.

“ and there is substantial private use (40%) of business rooms.”

Incorrect.

“To respond to the poster who mentioned the word 'workaholic', I have to say that it is not uncommon for me to see emails sent by my client timed in the early hours of the morning.”

He may well work long hours but working in the early hours of the morning doesn’t mean that he never stops. It could mean he has unusual working habits.

You previously mentioned that your client claims for one room that he uses to meet clients. I have a perfectly acceptable dining room which I use to meet some clients in although I meet with most clients in my office so I have access to my computer. I don’t claim for using the dining room. The true expenses would be minimal.

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By SimonP
13th Jan 2010 21:51

Did I create confusion with what I wrote?

Peter, I appreciate and thank you for your opinions but I think you may have grabbed hold of the wrong end of the stick with some of your comments as I was actually using the analogy of an office building when referring to empty rooms and part-time staff. I'm pretty sure that you would not accept a disallowance of expenditure on a client's suite of offices because a room or two may be under-used.

I do have to ask, however, what is irrational in making use of space provided if it enables one to work more efficiently? Of course, one man's meat is another man's poison or to put it into context, what is sensible and rational to one person may be seem irksome to another.

I have another client who rents office space on an ad hoc basis whenever she wants to meet with a client. She does that rather than have a meeting in her home over the kitchen/dining room table. Now, that may seem irrational to some but that is her choice and she is still entitled to claim for the rent of that office.

Personally, if I had the space available, it would be wonderful not to have to keep shelving jobs I am in the middle of (because I have come to a sticking point and need client input) before getting out another one. Time is money and it is a waste of both digging out the paperwork each time, trying to remember what point I had reached when I had to stop. It's even worse when a client phones to discuss queries and I don't have the space to deal with his paperwork and the job I'm currently on unless I move over to an empty desk. Remember, the first rule in accounting, do not contaminate the evidence by mixing up work. Actually, I made that up but it's a lesson well learned many moons ago. Keep work separate and if one has the space to do so, I wouldn't call it irrational to utilise it. Quite the opposite.

The idea of having a number of work stations/areas sounds really appealing. How many of us in practice are working on several different clients at the same time? If we weren't the WIP figures would be pretty low.

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13th Jan 2010 22:35

Efficiency vs inefficiency

<<<Did I create confusion with what I wrote?>>>

No, I understand where you are wrong perfectlywell!

<<<Peter, I appreciate and thank you for your opinions but I think you may have grabbed hold of the wrong end of the stick with some of your comments as I was actually using the analogy of an office building when referring to empty rooms and part-time staff. I'm pretty sure that you would not accept a disallowance of expenditure on a client's suite of offices because a room or two may be under-used.>>>

Of course I wouldn’t accept a disallowance of expenditure on an office building. What we are talking about here though is an allocation between business use and private use. There is no logical reason to claim that an empty room in a private home is used for business and not personal. Similarly, there is no logical reason why an empty room in an office building should be treated as personal use unless the facts dictate otherwise.  If a part time member of staff uses a room in a residential building for 4 hours in 24 hours five days a week then it is reasonable to allocate the business expenditure on that basis.

<<<I do have to ask, however, what is irrational in making use of space provided if it enables one to work more efficiently? Of course, one man's meat is another man's poison or to put it into context, what is sensible and rational to one person may be seem irksome to another.>>>

It’s what a reasonable person would think is reasonable. If I said I like to read my clients files in my bed and leave the file in the bedroom I should be able to claim for my bedroom as well?

<<<I have another client who rents office space on an ad hoc basis whenever she wants to meet with a client. She does that rather than have a meeting in her home over the kitchen/dining room table. Now, that may seem irrational to some but that is her choice and she is still entitled to claim for the rent of that office.>>>

Of course she is entitled to claim for the rent. Is anybody suggesting that part of it is personal and therefore should be apportioned?

<<<Personally, if I had the space available, it would be wonderful not to have to keep shelving jobs I am in the middle of (because I have come to a sticking point and need client input) before getting out another one. Time is money and it is a waste of both digging out the paperwork each time, trying to remember what point I had reached when I had to stop. It's even worse when a client phones to discuss queries and I don't have the space to deal with his paperwork and the job I'm currently on unless I move over to an empty desk. Remember, the first rule in accounting, do not contaminate the evidence by mixing up work. Actually, I made that up but it's a lesson well learned many moons ago. Keep work separate and if one has the space to do so, I wouldn't call it irrational to utilise it. Quite the opposite.>>>

May I suggest you do what I do. I use two 32” monitors and I encourage my clients to send me paperwork by pdf, Excel or accounting software data. I display whatever information I need to view on one monitor and enter information on the software displayed on the other monitor. I would also suggest that you record the information you have available and is needed by scanning the paperwork or recording the information in a format that you would be using anyway to prepare the accounts or whatever. I don’t mean you have to scan massive amounts of paperwork. When you get more information you don’t need to go back to the original paperwork you just record the new information.

Take a very simple example: You are analysing a bank account. You don’t know what a payment is for. Put the amount in a “Queries” column and do the rest of the work. Ask the client about all the queries. When you get the answers then move the amounts out of the “Queries” column into the relevant column(s). Not everything is as simple as that but there is usually a way of working that doesn’t involve putting much paperwork away and getting the paperwork out again. One of the principles of time management is to try to look at documentation once only.

You will find that is much more efficient than putting papers away and getting them out again.

<<<The idea of having a number of work stations/areas sounds really appealing. How many of us in practice are working on several different clients at the same time? If we weren't the WIP figures would be pretty low.>>>

It sounds totally inefficient! I start on a client and work until I can do no more. I may have visits from other clients or phone calls but I very rarely have paper strewn all over my desk. As I said, most of it is in electronic format. Anything that is paper-based I will spread out, put in order of working on it and then put it in one pile. If I had to see another client before dealing with all the work I would put the pile of papers I have looked at and the pile of papers I have yet to look at on a shelf or drawer in two piles. When my client leaves I would get them out again. I’m not saying everything is always as simple as that but 99% of my work is.

WIP is mainly because we don’t invoice for every VAT return or annual return. We should balance our admin with the client’s needs.

Right now I have done a lot of work on client’s jobs and had queries. I’ve usually sent them pdf’s if they need to refer to a document I have and usually they will email me the answer back. I make the adjustment in Excel, accounts production software or tax software without messing about with files or desks or rooms!

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13th Jan 2010 22:57

Peter

Two monitors is now old hat.  You need three these days.  The third can be smaller and should just hold outlook and other information that may needed immediately and not refer to the client that you are currently working on..

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13th Jan 2010 23:15

Any advance on three monitors?

You mean like Bill Gates?

Because a lot of my work is either getting information from Outlook or putting information in Outlook I think two monitors are enough for me. I also have different Google Chrome tabs for the HMRC and Companies House websites. Another time management principle is to not keep checking your email and then not deal with it immediately. Besides emails that take longer than a minute to deal with you should just do two or more of the following read/delete/reply/file.

My biggest regret is that my two monitors obscure my view of the squirrels in my garden!

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By SimonP
14th Jan 2010 01:16

Someone obviously has a Utopian practice, which makes me envious

Peter, If I could stop clients chucking screwed up receipts into Tesco carrier bags and get them to write up books, I'd be happy. They know they are now legally required to write up books on a regular basis but still they don't. Doesn't apply to all of them, of course.

The majority don't have or even want a computer let alone sending stuff via email. I adore my clients but scan a document? Get outta here.

How exactly are you able to get your clients to scan all their petrol receipts (assuming they keep such things), a lot of which have probably either faded as they are on thermal paper or been through the wash? Do you ask them to scan their Simplex D books too? What about till rolls and Z readings? This will be an interesting learning curve for me.

What intrigues me is that you consider the use of multiple monitors as very useful, necessary even.

Now, to me, I find that unreasonable. Since I use only one screen, so should everyone else. Isn't that the argument you have been putting forward? With respect, you have very kindly suggested how my client and I should be running our respective practices without any knowledge of either of us or our client base. What works for you, doesn't necessarily work for someone else. We all have our own way of working, which is the point I have been making all along.

 

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14th Jan 2010 09:27

Business use of the use of home expenses

Back to my original posting the point I was trying to make was that if you look at the heating bills the business use element of that bill can only be for heating the room that you client is in and working. The heating cost for any other room is private expenditure as it is not being used for business purposes at the time in question. Even if the room has been set up as work place.

If you then look at for example your claim for the hallway for storage what are the actual costs for this space in respect of the business. heat and light would be marginal and the actual amount of time that it is being used for business would also be low.

As has been mentioned the costs are private unless being used by the business, not business unless being used for private reasons. I believe that this is clearly different and would impact on the amounts allowable.

You explain that the reason for having multiple workstations is to ensure client confidentiality and yet argue that capital gains is not relevant because the rooms are not used solely for business. Is this because guests use the rooms in which case how does the client deal with confidentiality when this happens.

Again my advice would be to rework your claim using the Revenue guidance to see how far out your claim is if at all and then you will be able to decide how to proceed with the enquiry.

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14th Jan 2010 09:48

January Chortle!

I've come a little late to this thread, however I find myself guffawing at the thought of this "legal eagle" moving swiftly from one room to the next in order to do half an hours work on a different file, in the most efficient manner possible. Whats the Peter Sellars film with the time and motion man called? Ah well it must be because its January...

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14th Jan 2010 11:10

Efficiency - good; inefficiency - bad

<<<Someone obviously has a Utopian practice, which makes me envious.>>>

You, too, could have a utopian practice. It just takes a little bit of effort.

<<<Peter, If I could stop clients chucking screwed up receipts into Tesco carrier bags and get them to write up books, I'd be happy. They know they are now legally required to write up books on a regular basis but still they don't. Doesn't apply to all of them, of course.>>>

Most of my clients keep their records electronically and even if they didn’t they are happy to do so. I have a few who write up books and I charge accordingly. It doesn’t take long to extract the required information. One or two have come to me and were hoping that they could get by with just giving me documents rather than lists or totals but my respective charges soon produced the required outcome!

<<<The majority don't have or even want a computer let alone sending stuff via email. I adore my clients but scan a document? Get outta here.>>>

Are you happy with your client base?

<<<How exactly are you able to get your clients to scan all their petrol receipts (assuming they keep such things), a lot of which have probably either faded as they are on thermal paper or been through the wash? Do you ask them to scan their Simplex D books too? What about till rolls and Z readings? This will be an interesting learning curve for me.>>>

I actually adopt a sensible approach, which I would recommend to you to! If they have documents I ask them to record them to keep their costs down. If they have books they can deliver them to me or my wife will collect them along with the documentation.

<<<What intrigues me is that you consider the use of multiple monitors as very useful, necessary even.>>>

What do you do when somebody sends you a spreadsheet or pdf? How do you extract information to your accounting or tax software? I simply look at the document on one monitor and input the information on the other monitor.

<<<Now, to me, I find that unreasonable. Since I use only one screen, so should everyone else. Isn't that the argument you have been putting forward?>>>

No. I have thought about the best way of working, adopted it myself and recommended it to others. Is that sensible?

<<<With respect, you have very kindly suggested how my client and I should be running our respective practices without any knowledge of either of us or our client base. What works for you, doesn't necessarily work for someone else. We all have our own way of working, which is the point I have been making all along.>>>

What I do know is that both you and your client appear to work in a very inefficient manner. If you are both happy to continue in that way that is your decision. What is worrying is that you seem to possess no analysis skills and simply try to justify – badly - the status quo.

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14th Jan 2010 11:34

Are you

Robert Harper in disguise?

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14th Jan 2010 11:57

Flexibility

Just to show how flexible I am when it makes sense ..... I sent this email early this morning.

"You can send the information however you want. Any combination of fax, pdf, Excel or paper is accepted here!"

I do know that the client mainly has dividend vouchers, P60 and a few other documents.

Running an accounting practice is mainly a question of planning, organisation and being reasonably flexible without accepting anything that clients throw at you.

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By SimonP
14th Jan 2010 13:16

Sorry but this makes no sense.

"Running an accounting practice is mainly a question of planning, organisation and being reasonably flexible without accepting anything that clients throw at you."

How do you run a practice (or any business come to that) without accepting what clients give you? Isn't that the essence of our business?

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14th Jan 2010 13:34

It makes perfect sense to me

I only do work for clients when I can provide an efficient service. If they want to provide me with information which they have made very little effort with I ask my wife to deal with the paperwork until it is in an acceptable form for me and they pay a large premium.

If they don't like it they can go to any number of mickey mouse accountants who will do whatever they want for a few hundred pounds.

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14th Jan 2010 16:13

Two screens or one?

Two screens OR one screen + Alt Tab.

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14th Jan 2010 16:47

No contest

Two screens wins easily.

Nobody could seriously suggest alt-tab is efficient.

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14th Jan 2010 17:59

Legislation and case law

Rather than look at HMRC's manuals, you will be better off just considerating what the actual tax law says, because that is what a Tribunal will do. Remember that HMRC's guidance is not the law, and you cannot rely on it in court!

1. Go to section 34 ITTOIA 2005 - if an expense is incurred for more than one purpose you may claim a proportion providing that you can identify a proportion of the expense which are wish to claim. The legislation give no basis for apportionment for this and so you must use your best judgement.

If HMRC's officer does not agree with your best judgement you should ask for a second opinion from HMRC. If you are still getting no where appeal to the Tax Tribunal when HMRC attempts to raise an assessment.

Case law: well not surprisingly the courts always look at the facts and then they look at what is presented to them, and if they think that it is just and reasonable they will accept it. In terms of use of home claims they accept estimates, because there is no practical method of doing so otherwise, and it would be quite mad to be sitting their adding up square centimeters providing that work is genuinely done at home.

The hassle with the Tribunal is that it is a day out, however, if you cave it, I have no doubt that the officer will go back five more years and cost your client a small fortune. Once you have caved it you will also become easy prey for HMRC who may then want to come and look at all your clients.

I publish a detailed guide to "What expenses can I claim, working from home". You can find it on my site, where you can also get my details for Virtual Tax Assistance if you want a second opion your end: www.rossmartin.co.uk

 

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14th Jan 2010 18:24

Don't back down if you are confident of your case

I spent months arguing with various HMRC staff over an issue and all of them said I was wrong. The week before the Tribunal I received a letter saying they'd reviewed the case and agreed I was correct.

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By Anonymous
24th Jan 2010 16:31

Council tax

I am just belatedly catching up on emails and didn't read the entire thread as it seamed to go of theme so if this has already been stated above then my apologies.

 

Using a private residence to such a large degree for business purposes could well be of interest to the local government.

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By SimonP
08th Mar 2010 04:30

Case resolved satisfactorily ... read on.

BRIEF BACKGROUND: A claim had been submitted for 60% business use of home, which HMRC were not willing to allow.

My original computations were based on the number of business rooms in the house as a percentage of the whole (excluding kitchen and bathroom). This equated to 76.47% less private use adjustment of 10%, arbitrarily further reduced to 60%.

All rooms in the property were then measured and the new calculations, based on total floor area, showed the business element to be 61.63%. Applying a private use adjustment of 10% brought this down to 55.47%, which was not substantially different to the result originally achieved of 60%.

The inspector was informed that the complete work area of the house is set aside solely for business use throughout the day and there is no simultaneous non-business use.

In this particular set of circumstances and having due regard to the guidelines contained in the HMRC Guidance Manuals, the inspector was told that attempting to apportion overheads based on time spent in each room (which is what he wanted to know) was not practical nor was it required by ITTOIA 2005 s34, which lays down no basis for apportionment where an expense is incurred for more than one purpose.

Since the two types of calculation I performed compared favourably with each other [see BIM47815], I asked the inspector to accept my original computations to be both fair and reasonable.

The inspector's response was to immediately close down the enquiry but on the basis of allowing only 55% business use, instead of 60%. Bearing in mind the huge climb down by HMRC, this small difference was not worth arguing about.

I hope the foregoing may prove helpful to readers in a similar situation but do remember that each case revolves strictly upons its own facts. Use the assistance of the Revenue Manuals to argue your case but do bear in mind that the contents are guidelines only and not the law, which HMRC also have to consider when taking cases forward. This particular case took nearly 12 months to resolve, so be prepared to dig in for the long haul.

May I take this opportunity to thank those people kind enough to offer their advice and opinions.

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08th Mar 2010 07:54

Simon, thanks

Thanks very much for bringing us back the answer (was it really at 4am??), which is most useful to members. I hope that our contributions helped reassure you during the enquiry (or at least some of them!)

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08th Mar 2010 11:13

what categories of costs were included in the claim?

To the OP:

Congratulations on winning your claim.

Apart from gas/electric, what expenses were included in the use of home as office claim? Council tax? Mortgage interest? Repairs and maintenance? Buildings insurance?

Sorry if this has been reported already but I have scanned the thread and can't see it mentioned.

 

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08th Mar 2010 12:07

Well done, thank you for the feeback

As also noted from my post above, it would have put you on the spot if you had caved in.

The lesson learned: make sure that your working papers contain workings to justify any claims, if necessary compare different bases to ensure that your result is reasonable.

Virtual tax support and know-how for accountants: www.rossmartin.co.uk

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By SimonP
08th Mar 2010 15:36

Specific deductions: use of home: specific expenses.

To respond to Red Leader, may I recommend reading BIM47820.

"This page looks at some of the types of expenditure that may be allowable. It should not be seen as an exhaustive list. What is allowable depends on the facts in each case."

This should answer your query.

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08th Mar 2010 16:02

what cost categories were agreed in the enquiry

Hi Simon,

Thanks for the reference to the BIM which I have looked at in the past. My post was really to find out what categories of costs HMRC agreed to in the specific tax enquiry that you dealt with.

 

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08th Mar 2010 18:55

congratulations

very happy to hear the good news, and really apreciate you letting us know the outcome. I thought you were right, but I didn't think you'd win. Happy to see you did!

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By Anonymous
08th Mar 2010 19:22

Do let us know how the PPR claim goes as well

when your client comes to sell his house. I just cannot help thinking that HMRC are going to have made a note to take a tough line on this one...............might end up costing far more than the tax relief on the expenses........

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29th Jun 2010 14:13

Work required v amount paid

If a potential client wants to give me a mess but is not willing to pay a reasonable amount for me to sort it out properly I would judge it not worth the effort and tell them to go elsewhere.

 

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By JimH
24th May 2014 08:51

Noted for self-employed use of home & PPR risk
.

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