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4

Use of home – fixed costs

HMRC examples in conflict?

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BIM47825 example 4 apportions fixed costs on the basis of business hours used as a proportion of 24 hours in a day, whereas example 6 further down does the same apportionment using business hours as a proportion of total hours used (business + domestic)  which of course gives a much higher proportion. In both cases the business room is also used for domestic purposes as well as business.

Am I missing something here ?

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Hallerud at Easter
By DJKL
20th Oct 2019 23:29

The example assumes power is only used during the hours the room is used not 24 hours so apportions the power useage between time used business and time used family.

The other costs arise over the whole 24 hours of a day so are apportioned on that basis, council tax runs when use the room for business, use the room for family, nobody uses the room.

I think their logic is slightly faulty, e.g. my fridge and freezer run 24/7, my central heating comes on before we get home and goes off after we have left, however I can see why they view the cost heads differently.

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By agburton
21st Oct 2019 07:53

Sorry if I didn't make myself clear - I fully understand the logic of variable costs accruing only when used and fixed costs on a 24 hour basis, which is how the first example works, but in the second the fixed costs are only spread across ten hours (different from variable costs, spread over six). That was the contradiction I was querying.

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Hallerud at Easter
By DJKL
21st Oct 2019 12:15

Sorry I misread and thought your were querying the two distinct approaches within example 4 rather than comparing examples 4 and 6.

I think the difference may be that the room contains office furniture and stores office drawings all the time in Ex 6 whereas Ex 4 is the living room, but have not fully gone through to check my logic- have a look in that light and see if makes sense.

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By agburton
21st Oct 2019 14:33

Ah, yes, well spotted. Thank you. Though the fact that the room is still used for 2 hours a day for domestic seems to weaken the logic a bit. However the facts mirror the situation I am currently looking very closely, and apportioning fixed costs per ex 6 makes quite a favourable difference, so I think I'll take their word for it!

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