As many businesses now operate from home, HMRC allow you to apportion certain expenses between business and private use of a property, even though no extra overheads are generated. You can use either the apportionment of expenses method or the fixed deductions for home running costs method, as outlined below:
Apportionment of Expenses
You must ensure expenses are apportioned and allocated realistically, and this can be done by floor area, usage, time of use or any other method which can be seen to give a fair and reasonable result. The allowable expenditure is split into two categories – fixed and running costs. Fixed costs include insurance, council tax, mortgage interest and repairs and maintenance. Running costs can include cleaning, telephone, broadband, utilities and metred water charges.
You must bear in mind however, that where you use a room exclusively for business, it will not count as part of a home for tax purposes and could mean losing out on some capital gains tax principal private residence relief.
Fixed Deductions for Home Running Costs
The fixed rate expenses method was introduced from 6 April 2013 and was created to simplify the apportionment calculation. The deductible amount is based on the number of business hours carried out in the home per month. These are as followed:
- Up to 25 hours – No relief
- 25-50 hours – £10 per month
- 50-100 hours – £18 per month
- Over 100 hours – £26 per month.
If the property is only used for part of a month the number of hours required will not be reduced. This calculation would need to be carried out every month and if this claim is made no further expenses can be claimed.
The fixed rate deduction cannot be claimed if the business is a partnership where any partner is a company.
Either method can be input directly onto a sole trader’s accounts but a partner of a business cannot enter them directly onto their own tax return. Any deductions must be made through the partnership tax return and, regardless of which method is used, the adjustments must reflect only the actual cost that the partner has incurred.
Please contact Green & Co for further information.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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