Working from home expenses

[mobwell]

Just wanted to double check something.
I have a limited company and I occassionally work from home and do my accounts etc from home. I have one bedroon set aside exclusively for this work. As I understand it since April 2006 I cannot claim any proportion of my council tax, mortgage interest or water rates and only the extra costs incurred for gas and electricity and phone calls for that one room which is very little can be claimed. Is this correct?

[DaveB]

Not according to my accountants, unless I seriously misunderstood what they told me.

You divide the toal running costs of your house per month, excluding mortgage interest, by the number of rooms, not including bathrooms,toilets and hallways and then multiply by the number of rooms used for business. Thats the amount you can claim. If you use the room half for business half for personal use then claim 50% etc.

[mobwell]

Pre 2006/2007 that may have been true http://www.hmrc.gov.uk/manuals/senew/SE32835.htm
but 2006/2007 onwards things seem to have changed I think
See
http://www.hmrc.gov.uk/manuals/eimanual/EIM32820.htm http://www.hmrc.gov.uk/manuals/eimanual/EIM01474.htm http://www.hmrc.gov.uk/manuals/eimanual/EIM01478.htm

[Denny]

£2 a week to cover everything seems about right.

[philip@wellwoodhoyle]

The new rules only apply when you are claiming the expenses to cover working from home and are quite restrictive, basically saying £2 per week is OK but anything more you need proof and with quite a lot of exceptions, such as mortgage interest and fixed utility costs - basically all you can claim on this basis is the "extra" you spend because you are working from home.

There is a better way.....

Use a formal licence or rental agreement between yourself and your company for use of the room and pay rent. That way, you are taxed as having rental income, against which you can indeed set off a proportion of ALL attributable expenses including a proportion of virtually all fixed costs, possibly even mortgage interest! Set the rent right and you will have a break-even situation meaning no tax payable on the rent received less expenses. Don't worry about business rates or capital gains tax on the eventual sale of the profit - the risks are GROSSLY over-rated - business rates will only be levied if you have staff or customers regularly attending your premises - capital gains tax is only on the proportion of the whole building used for business and you'll be entitled to business asset taper relief and the annual CGT allowance, so the profit on the whole building needs to be very substantial indeed before you risk having a capital gains tax bill.

[mobwell]

WHA

So if I understand you correctly I could for example charge my company £200 per month for the rent of my office (on which I pay personal tax at 40%), but then on my personal tax self-assessment form I could offset this with the expense of providing the office. For example each month mortgage interest £800 + Gas/Elec/Water/Phone £100 + Council Tax £100 = £1000/month.
If I devide this by 5 (5 rooms in house (3 bed+kitchen+living room) I can claim £200/month to offset the rent.
Did I understand this correctly?
Is this totally Ok with the inland revenue?

[Bigbird]

Pre 2006/2007 that may have been true http://www.hmrc.gov.uk/manuals/senew/SE32835.htm
but 2006/2007 onwards things seem to have changed I think
See
http://www.hmrc.gov.uk/manuals/eimanual/EIM32820.htm http://www.hmrc.gov.uk/manuals/eimanual/EIM01474.htm http://www.hmrc.gov.uk/manuals/eimanual/EIM01478.htm

All of those new rules apply to an employee working from home though.

Running a company from your home address is surely a different matter?

[philip@wellwoodhoyle]

WHA

So if I understand you correctly I could for example charge my company £200 per month for the rent of my office (on which I pay personal tax at 40%), but then on my personal tax self-assessment form I could offset this with the expense of providing the office. For example each month mortgage interest £800 + Gas/Elec/Water/Phone £100 + Council Tax £100 = £1000/month.
If I devide this by 5 (5 rooms in house (3 bed+kitchen+living room) I can claim £200/month to offset the rent.
Did I understand this correctly?
Is this totally Ok with the inland revenue?

That's the general idea, but 1/5th is probably way too high, more likely to be challenged and more likely to give a capital gains tax bill. The old one room out of five idea was basically to account for usage of utilities, if you are planning to formally rent a room, you have to apportion the costs more on a more realistic pro-rata base of the value of the room compared to the value of the whole property, so in your case, it is perhaps more like 1/10th or 1/15th maybe an even smaller amount. But even if it was 1/20th, you're still getting £50 per month in your example as opposed to just £2 per week under their published guidance. As long as the values are realistic and based on fact, HMRC will be ok with it.

[mobwell]

bigbird, that is where my confusion is. I assume that as I am an employee (albeit of my own Ltd. Co.) working from home these rules would apply, and hence as an employee I cannot claim much in the way of expenses from my company.

Running the company from your home address may allow your company to set up some kind of rental agreement with you as WHA suggets in order to pay you the home owner (rather than as an employee) costs of supplying an office.

I'm really not sure hence my original post.