Reply to: Is use of home office a BIK?

[pr1]

Not readily to hand but (a) I'm not making it up and (b) if you want to trawl through HMRC's website looking for the actual rules then feel free. I have better things to do.

Fortunately WIB did it for us :-)

[WordIsBond]

This article is useful particularly in pointing out that even if you fall foul of CGT it probably isn't going to hit most people.

It is also worth noting that even if there is exclusive business use of one part of the property, it is only a proportion of the gain from selling your home that would become chargeable to Capital Gains Tax, and with a CGT annual exemption of £10,600 per person you may well have no Capital Gains Tax to pay anyway, especially if the property is jointly owned (e.g. by a married couple) as there would then be two annual exemptions to offset.

To give an example, if you bought your house for £100,000 and then sell it for £300,000 you are making a capital gain of £200,000. This would usually be exempt from CGT but if you had used 10% of the property exclusively for business use throughout your period of ownership then 10% of the gain (£20,000) could become subject to CGT. However, if the property is jointly owned by a married couple then you have two lots of annual exemptions (£10,600 each per annum) to offset and therefore no Capital Gains Tax would be payable.

To elaborate on that, suppose you managed to lose a part of your CGT exemption, the portion of gains which would be taxable are determined by the portion of the property you used for business AND by the portion of time you owned the house in which it was used solely for business.

So in the example above, that £20K would only be applicable if it were used for business the whole time you lived there. If you were there 20 years and used 10% of it solely for business for 5 years, only 2.5% of the gain would be subject to CGT, and your annual exemption would easily cover it.

This article, near the bottom, recommends a rental agreement for directors of owner-managed companies (which is most of us):

If you are a company director you may consider formalising a license agreement with your company in order to allow it to occupy part of your property. The company pays you rent and service charges which you should self-assess in the property pages of your tax return. You may wish to charge market rates having checked service office costs in your area; do not exceed market rates if you wish to be safe from HMRC challenge of disguised remuneration for National Insurance purposes. Against this property income, you can claim expenses along the same lines as a self-employed business owner using the most appropriate methods set out above. So you can recharge a proportion of mortgage interest and council tax. Get this right, and the result is tax neutral in the director's personal tax return, whilst the company receives a deduction for rent of space.

[TheCyclingProgrammer]

From the recent other thread on this, I understood that implied using a basic rental agreement between the company and the director, based on percentage of household expenses.

This is the "hidden third option" which I've not bothered mentioning thus far because it has been covered numerous other times in other threads. It's a potential solution to claiming more if you work from home a lot but you should take professional advice to make sure you understand all the potential implications of going down this route. But of course, this isn't really the same thing as "claiming for use of home" from YourCo.

[TheCyclingProgrammer]

I'm seeing a slight confusion on the debate about this expense BTW. Several people have simply said "you can only use the flat rate for business use of home by a Ltd, end of". Someone else mentioned "can you prove it was a real cost not made up". Those are different and seemingly contradictory.

The HMRC guidance is fairly clear on the matter and it's pretty simple:

* If you can provide evidence, you can claim for the costs of *additional* costs incurred, e.g. extra heating and electricity costs. You need to be able to show evidence of how you've calculated this additional cost and it cannot simply be a proportion of any fixed costs that you would otherwise be paying anyway.

* If you cannot provide evidence (or cannot be bothered to work it out), you can claim the flat rate of £4/week or £18/month without having to provide any evidence.

[WordIsBond]

Yebbut….

Potentially that makes part of your house genuine business premises with the risk of part of the value of the house being liable for CGT when you sell and other complications over insurances and mortgages.

Potentially, Jessica knows what she's about:

Generally, so long as the space is shared - it has some domestic use - its disregarded for Business Rates and CGT.

CGT relief is restricted where part of the home is let as residential accommodation, not where part of it is let on a part-time basis to the homeowner's employer and/or own business.

[malvolio]

Do you have any examples where this potential problem became an actual problem?

Not readily to hand but (a) I'm not making it up and (b) if you want to trawl through HMRC's website looking for the actual rules then feel free. I have better things to do.

[jmann]

Yebbut….

Potentially that makes part of your house genuine business premises with the risk of part of the value of the house being liable for CGT when you sell and other complications over insurances and mortgages.

How will it be liable for CGT when the company is renting the space? I had this conversation with an accountant recently and I was told, as long as you can justify the expense then it wouldn't be a problem.

For example, if you couldn't work from home, you would be forced to rent an office. That will be part of the business expense. Just because you have space in your house to use as an office, it doesn't mean business can use it free.

You do need to inform your mortgage and insurance provider.

[pr1]

Yebbut….

Potentially that makes part of your house genuine business premises with the risk of part of the value of the house being liable for CGT when you sell and other complications over insurances and mortgages.

Do you have any examples where this potential problem became an actual problem?

[malvolio]

From the recent other thread on this, I understood that implied using a basic rental agreement between the company and the director, based on percentage of household expenses.

Yebbut….

Potentially that makes part of your house genuine business premises with the risk of part of the value of the house being liable for CGT when you sell and other complications over insurances and mortgages.

[Spoiler]

From the recent other thread on this, I understood that implied using a basic rental agreement between the company and the director, based on percentage of household expenses.

[d000hg]

I'm fairly sure I always submit a p11d but that it is nil as this is the only expense I typically ever take.

I am sure I always say "no" to every question "is this a BIK" on the questionnaire so I'm wondering aside from the question if I should be claiming £50 as a non-BIK, this issue is down to either a mistake filling in InTouch's form, or a mistake on their part, rather than it being deliberate. InTouch have done my accounts the last ~5 years IIRC and this is the first time this happened. I will ask them to clarify what has happened.

I'm seeing a slight confusion on the debate about this expense BTW. Several people have simply said "you can only use the flat rate for business use of home by a Ltd, end of". Someone else mentioned "can you prove it was a real cost not made up". Those are different and seemingly contradictory.
HMRC used to have examples of "Bob uses a 3x4m room 8 hours a day for work, on his 100m^2 house. So he claims 4% of bills ((8/24) * (12/100)) as running expenses".

[TheCyclingProgrammer]

Just to add - even if the stuff in Box N is a legitimate expense, the reason why it would often result in a tax code change is due to the timing difference between when HMRC receive your P11D and your self assessment. The P11D doesn't give any indication to HMRC *what* the stuff in Box N is for, therefore it's treated as a BIK and often generates a tax code change - it's not until they receive your tax return with a claim for business expenses that they know there's no actual taxable BIK. This is one of the reasons why exemptions were introduced in favour of dispensations for common employee business expenses.

[Lance]

HMRC have nothing to do with it surely, they just read the paperwork I submit. My accountants have always told me if I can justify the higher figure, it is fine... So are we saying the only change is they listed it on the p11d this time?

the change might be more down to you not needing to issue a P11d UNLESS you have any BIK payments now.
So if you do one then HMRC will be looking for the BIK and then changing your tax code.
I reckon anyway.

[TheCyclingProgrammer]

HMRC have nothing to do with it surely, they just read the paperwork I submit. My accountants have always told me if I can justify the higher figure, it is fine... So are we saying the only change is they listed it on the p11d this time?

Stuff reported in box N is normally non taxable but traditionally, the payment made by YourCo is treated as taxable earnings which you would then offset with a claim for business expenses on your tax return, cancelling out the P11D figure. Box N would be used for payments for things like business calls, travel and subsistence etc.

In the past you had to go through this rigmarole unless you had a dispensation but most of these expenses are now covered by exemptions which means they should not appear on your P11D at all.

Use of home payments are exempt anyway and should not appear on your P11D however as has been stated you should either be paying yourself £4/week or the actual additional costs you’ve incurred if you have evidence.

You cannot simply claim a flat rate of £50/month or some other arbitrary proportional amount like you can if you’re self employed. That’s not the way it works. Strictly speaking the £50/month should be treated as taxable earnings. See the last section here:

https://www.gov.uk/expenses-and-bene...report-and-pay

If HMRC ever check your return and you can’t provide evidence that your additional costs were at least £50/month then you will be liable to tax and NI on the excess amounts.

[malvolio]

On the other hand, why wouldn't you claim it? It's as simple as setting up a recurring expense in freeagent (or on the InTouch portal which the OP is using).

Your £216 probably bumps up to more than an average day's rate by the time you factor in higher rate tax. On a 20 year contracting career, that's a month's billing!

Over my 22 year contracting career to date I would have earned £4752, free of tax (which is rather the point of the original question...), or roughly 0.2% of my gross or perhaps 0.4% of my net at best.. Somebody else had a go about not claiming lunch, worth around 95p a day in saved taxes. So it's neither here nor there really, I simply can't be bothered with such trivial amounts, life's too short.


My accountants have never complained either. Funny that...