When a business is operated through premises that are owned or let by the business, claiming for rent, rates and utilities, etc., is all relatively straightforward. However, when the business is run from the home of the proprietor or director (if a limited company), then the expense claim requires a little more thought.
If you wish to claim an apportionment of the household bills, as opposed to the flat rate allowance set by HMRC, then a number of factors should be considered for the calculation.
The area of the home used for business purposes (this can be expressed in terms of floor space or number of rooms) and the time in which that area is used for work should be established in order to apportion the bills.
If a room is used exclusively for the business, then it will not qualify for private residence relief so capital gains tax could be due when the house is sold. Therefore the room should also be used for domestic purposes to ensure the capital gains exemption.
Directors cannot claim any proportion of rent, mortgage interest, or council tax. However, they can charge the company rent for using their home and claim allowable, apportioned expenditure against the rental income. The rental income would have to be declared on the director’s self-assessment tax return.
Certain occupations have specific allowances and thresholds which have been agreed with HMRC, for example child minders, and these should be observed where applicable. For help and advise on this, please contact our tax team on 01633 871122.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.