Reply to: Use of home costs

[TheCyclingProgrammer]

My accountant has told me HMRC are taking a dim view of people who built cabins in their garden during the pandemic and tried to do this through their company.

There’s a lot of reasons why putting the cost of a garden office building through the business is a bad idea, especially when the only true saving is the VAT, plus any income tax saved by not paying for it out of your own post tax income (there’s no corporation tax saving in buildings). These savings are not worth the potential extra hassle in the long run. It’s been covered in previous threads on here (I have a garden office so been there, done that).

However there are a lot of costs you can put through the business if the garden office is mostly used for work during the week - e.g. office furniture and equipment and you can still claim the additional utility costs as outlined above. Same as having any mostly dedicated room at home really.

[TheCyclingProgrammer]

I have been using this model: https://www.freeagent.com/guides/exp...ted-companies/

Is this not recommended?

It’s one means of gathering evidence that you are only claiming for “additional” costs. Only on inspection would you know if it’s acceptable to HMIT. Do note that as I mentioned above, you can only apportion non-fixed costs like gas and electric though. HMRC explicitly do not tell you how to calculate the additional costs, only that you must keep evidence, so use common sense.

The whole point of the flat rate is that it allows you to claim a certain amount without having to worry about calculating anything or keeping evidence.

[TheCyclingProgrammer]

But that approach brings on a few other details, such as any mortgage restrictions on carrying on a trade, house insurance complications, both of which having a dedicated area of the home implies since it has to be "wholly and exclusively" and the minor detail of CGT when (if) you sell the house, since that will be due on the proportion of the total house dedicated to office use.

All in all, not worth the bother. Spend the money on dedicated company furniture and tools instead.

Well yes, but none of those issues are insurmountable. It’s fairly easy to structure a rental agreement to avoid these problems. Hence, “talk to your accountant” if you really want to pursue it. Personally I never bothered either, you also need to account for the rental income on your tax return and offset it with legitimate expenses.

Claiming “additional costs” with sufficient evidence is fairly straightforward though with no additional complications, again, if you can be bothered to work it out.

[northernladuk]

My accountant has told me HMRC are taking a dim view of people who built cabins in their garden during the pandemic and tried to do this through their company.

Quite rightly so as I'd imagine many of the claims will fall apart under the slightest scrutiny.

[TheDude]

Do that and you open up whole areas for HMRC to have fun with - just take the £28

My accountant has told me HMRC are taking a dim view of people who built cabins in their garden during the pandemic and tried to do this through their company.

[northernladuk]

I have been using this model: https://www.freeagent.com/guides/exp...ted-companies/

Is this not recommended?

No.

[Lance]

I have been using this model: https://www.freeagent.com/guides/exp...ted-companies/

Is this not recommended?

I've never seen that before. Looks simple enough.
I wonder if you'd need accurate heating bills.
Or the direct debit made up crap that the energy companies use to subsidise their business using your money.

[oneshot]

I have been using this model: https://www.freeagent.com/guides/exp...ted-companies/

Is this not recommended?

[Lance]

The general rule is to spend more time worrying about your rate or skillset and less time worrying about saving a tiny amount in tax on itemised working from home expenses. It is essentially impossible to (legitimately) beat the default amount of £26 per month by a margin that is worth the effort.

https://forums.contractoruk.com/acco...ml#post2951845

[jamesbrown]

The general rule is to spend more time worrying about your rate or skillset and less time worrying about saving a tiny amount in tax on itemised working from home expenses. It is essentially impossible to (legitimately) beat the default amount of £26 per month by a margin that is worth the effort.

[malvolio]

You don’t have to claim the flat rate but the only alternative - without going down the more complex route of renting space to YourCo - is to claim the actual additional costs you incur by working from home.

This means it cannot include any fixed costs that you already pay as they are not wholly, exclusively and necessarily for business purposes. In short, you can claim for the additional utility costs but it’s down to you to calculate the additional costs in a reasonable way and keep evidence of how you calculated in case HMRC queries it.

When you calculate it - say as a percentage of floor space that you use as an office, or by dividing the number of rooms and then adjusting for actual working hours, you might find it doesn’t work out a massive amount more than the flat rate.

I don’t know if the whole “rent a room to your company” approach is still recommended but this is very much a “talk to your accountant” option.

But that approach brings on a few other details, such as any mortgage restrictions on carrying on a trade, house insurance complications, both of which having a dedicated area of the home implies since it has to be "wholly and exclusively" and the minor detail of CGT when (if) you sell the house, since that will be due on the proportion of the total house dedicated to office use.

All in all, not worth the bother. Spend the money on dedicated company furniture and tools instead.

[TheCyclingProgrammer]

You don’t have to claim the flat rate but the only alternative - without going down the more complex route of renting space to YourCo - is to claim the actual additional costs you incur by working from home.

This means it cannot include any fixed costs that you already pay as they are not wholly, exclusively and necessarily for business purposes. In short, you can claim for the additional utility costs but it’s down to you to calculate the additional costs in a reasonable way and keep evidence of how you calculated in case HMRC queries it.

When you calculate it - say as a percentage of floor space that you use as an office, or by dividing the number of rooms and then adjusting for actual working hours, you might find it doesn’t work out a massive amount more than the flat rate.

I don’t know if the whole “rent a room to your company” approach is still recommended but this is very much a “talk to your accountant” option.

[Lance]

The claimable rate is for permies working from home.

It is a personal tax relief. It doesn't matter who you work for.
Your company could pay you £1,000 a month for home office but it would be a taxable benefit.

I just want my company to pay its way, not looking for 'free money'.
If the allowance does indeed disappear how will my company pay its way?

Rent an office. You could even buy a commercial property with your SIPP and rent it to your company (that's legal)

The mechanisms are there now,

they are, but they are complex and if part of your home very difficult to prove there is no duality of purpose

And 'back to the office' is not an option, I work from my home office for multiple clients every day. Clients no longer want to house contractors in my sector.

still cheaper than driving everywhere.


I've got one of these if it helps?

[gorses]

The claimable rate is for permies working from home. I just want my company to pay its way, not looking for 'free money'.
If the allowance does indeed disappear how will my company pay its way? The mechanisms are there now, I don't see why it is frowned upon. (Not disputing it is/was though)
And 'back to the office' is not an option, I work from my home office for multiple clients every day. Clients no longer want to house contractors in my sector.

[Lance]

Yes the claimable rate is behind the times. It ain't going to change though. UK Gov wants people back in the office, and more tax revenue (remembering that all those WFH people during the pandemic have cottoned to the free money as well), so don't be surprised if this allowance disappears soon.

It is lot cheaper than renting or travel. So suck it up buttercup.