renting close to gig

[meridian]

So when it becomes claimable, it needs to be proved? (Just being pedantic here).

Of course. That's what business records are, proof of your income and expenditure to verify your taxable income.

The one thing I am confused about is how does one prove that an expense is wholey for the purpose of business? How does one prove that something wasn't used for both personal and business purposes?

Don't get me wrong here, I am not looking to break the rules, but am looking for clarification on how one can prove that an expense is purely and wholey for the purpose of business (where the expense was primarily intended for the carrying out of the business).

For example, if I buy a computer (which turns out to be the only computer in the trading address, which is primarily used to carry out business activities), what is stopping, lets say, the rest of the family from using it to surf the internet? (This is assuming that the cost of the computer is expensed through the company).

I guess the question I am trying to ask here is how is it possible to avoid the potential side effects of an business expense?

Tax is self-assessing. That means that as the director of your company, if you purchase something for business use but allow it to be used for personal use, it's up to you to justify or estimate the split. If there's a reasonable risk the you have personal use and haven't declared it or disproven it then HMRC will ask you to prove the 100% business expense.

To use your example, if you have one computer in the house and claim it's 100% business but you also have two teenage children, then the balance of probability is that it is also used for personal use. A quick check of the history logs will no doubt prove that there is at least some personal use. The usual HMRC tactic is to then disallow the lot until you can prove the business use proportion. The onus is on you (as the self-assessor and business owner) to keep logs or such before they are needed in an audit. If, however, the computer is at a business premise and the personal use is minimal (the odd posting on CUK for example), then de minimus will usually apply. (Note that I'm not saying that the full expense couldn't be justified in some way by blagging, I'm just stating what the requirement is).

How do you protect yourself from potential queries? Again, in your example, if you've taken reasonable measures to protect your asset from non-busienss use (user ID and password that the family doesn't have access to, family have their own computers also so no need to use yours, stored in a lockable office, etc - probably overkill ) than there should be no further query.

[pmeswani]

HMRC cannot (yet!) dictate to a business how it spends its own money in the pursuit of income. An expense is claimable if it is incurred in relation to assessable income, and there is no distinction for "need", nor of cost, provided the business can show that the expense relates to that income.

In this instance the OP will have great difficulty in proving that the expense is incurred in relation to income rather than for private purposes. However, nobody is required to prove to HMRC that they "need" an expense before it is claimable.

So when it becomes claimable, it needs to be proved? (Just being pedantic here).

The one thing I am confused about is how does one prove that an expense is wholey for the purpose of business? How does one prove that something wasn't used for both personal and business purposes?

Don't get me wrong here, I am not looking to break the rules, but am looking for clarification on how one can prove that an expense is purely and wholey for the purpose of business (where the expense was primarily intended for the carrying out of the business).

For example, if I buy a computer (which turns out to be the only computer in the trading address, which is primarily used to carry out business activities), what is stopping, lets say, the rest of the family from using it to surf the internet? (This is assuming that the cost of the computer is expensed through the company).

I guess the question I am trying to ask here is how is it possible to avoid the potential side effects of an business expense?

[meridian]

Your analogy is not correct in this instance I believe... The cars and the hotels yes because you have a need for a car, the type doesn't matter, and a need for the hotel, the name doesnt matter. In this case he does NOT need to rent the house so you are comparing apples and pears.

HMRC cannot (yet!) dictate to a business how it spends its own money in the pursuit of income. An expense is claimable if it is incurred in relation to assessable income, and there is no distinction for "need", nor of cost, provided the business can show that the expense relates to that income.

In this instance the OP will have great difficulty in proving that the expense is incurred in relation to income rather than for private purposes. However, nobody is required to prove to HMRC that they "need" an expense before it is claimable.

[northernladuk]

Common sense doesn't necessarily have to apply, but the tax statutes do.

Hector can't tell you what to spend your company money on - if you want a Ferrari as a company car instead of a nice safe Volvo he can't say no; neither can he force you to stay in a Travelodge instead of the Marriott. And whether your business lodgings are 2 miles or 200 is none of his business.

YourCo can pay for the lodgings, but whether they are a deductible business expense depends on whether they were incurred solely in the production of assessable income. Will your family also be staying there? Will you be returning to the family home on the weekends? To what extent is the property being used for personal reasons?

These are rhetorical questions by the way, you've already answered the main question of whether the expense is incurred in the production of assessable income and the answer is no - it is incurred for personal reasons. Therefore, even though the company can stump the cost, you'll be paying all that tax saved back as benefit in kind.

Your analogy is not correct in this instance I believe... The cars and the hotels yes because you have a need for a car, the type doesn't matter, and a need for the hotel, the name doesnt matter. In this case he does NOT need to rent the house so you are comparing apples and pears.

[LisaContractorUmbrella]

I would agree.

But hypothetically speaking, if I secured a contract with a clientco that is, let's say, 200 miles away from my normal trading address (i.e. my home), would I be allowed to rent a place and claim it through the business? Could it be argued that I wouldn't have rented the place if I hadn't secured the contract? Could I also argue that I would stay the weekend at the rented place as it would not be cost efficient to travel back to my trading address on weekends? If so, how would one claim the cost of the rent, bills, council tax, etc (i.e. the whole bill or just n/7th's - where n can = 1 to 7)?

This is purely a hypothetical question mind you...

There is no reason why you could not rent somewhere. It is claimable as a business expense provided that it is an additional cost caused wholly because of the contract. The only time it would not be claimable would be if you had rented out your original accomodation and were receiving income that covered the rent or mortgage as the secondary accomodation would then not be an additional cost.

[pmeswani]

I think you'd have difficulty proving that it was a legitimate business expense to pay for it, to be honest.

IANAA.

I would agree.

But hypothetically speaking, if I secured a contract with a clientco that is, let's say, 200 miles away from my normal trading address (i.e. my home), would I be allowed to rent a place and claim it through the business? Could it be argued that I wouldn't have rented the place if I hadn't secured the contract? Could I also argue that I would stay the weekend at the rented place as it would not be cost efficient to travel back to my trading address on weekends? If so, how would one claim the cost of the rent, bills, council tax, etc (i.e. the whole bill or just n/7th's - where n can = 1 to 7)?

This is purely a hypothetical question mind you...

[meridian]

close, but not quite - about to buy a new house and will need a few months to do it up so it will be easier to stay away while chaos rules there (but could stay if needed).

So thought that the business could stump up and save me some Corp Tax!

Common sense doesn't necessarily have to apply, but the tax statutes do.

Hector can't tell you what to spend your company money on - if you want a Ferrari as a company car instead of a nice safe Volvo he can't say no; neither can he force you to stay in a Travelodge instead of the Marriott. And whether your business lodgings are 2 miles or 200 is none of his business.

YourCo can pay for the lodgings, but whether they are a deductible business expense depends on whether they were incurred solely in the production of assessable income. Will your family also be staying there? Will you be returning to the family home on the weekends? To what extent is the property being used for personal reasons?

These are rhetorical questions by the way, you've already answered the main question of whether the expense is incurred in the production of assessable income and the answer is no - it is incurred for personal reasons. Therefore, even though the company can stump the cost, you'll be paying all that tax saved back as benefit in kind.

[Drewster]

doesn't a bit of common sense come in to play here? Question really should be how open are you to risk. you could try but you are Hectors Biatch if anyone comes looking.

I think you might be <ahem> pushing your luck...... but give it go and let us know how it goes.

[northernladuk]

doesn't a bit of common sense come in to play here? Question really should be how open are you to risk. you could try but you are on a wish and a prayer if anyone comes looking.

[The Wikir Man]

I think you'd have difficulty proving that it was a legitimate business expense to pay for it, to be honest.

IANAA.

[JonSmile]

close, but not quite - about to buy a new house and will need a few months to do it up so it will be easier to stay away while chaos rules there (but could stay if needed).

So thought that the business could stump up and save me some Corp Tax!

[The Wikir Man]

If it's a legitimate business expense, then claim it.

I can't understand why you would want to spend additional rent to save 2 miles of travel to clientco, unless you have shacked up your mistress in the other place and don't want the Mrs to find out.

[JonSmile]

Hi,

If I rent a place close to gig but only about 2 miles away from main office of MyCo. (i.e. my home), can I get away with claiming the costs back on the rental from MyCo?

I know I could be pushing it slightly here, but have to ask just to see what people here think..