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Expenses for the self-employed

By Angela Beech
Blick Rothenberg Accountants

Angela Beech from Blick Rothenberg Accountants
You've got to have converted a room to use as an office, so this isn't for somebody who's working at their kitchen table or on their laptop in front of the TV
Angela told Working Lunch

It seems that HM Revenue & Customs (HMRC) have had a change of heart.

This is in reference to the type of expenses that can be claimed by the self-employed where they work from home without the home becoming liable to Capital Gains Tax on sale.

New guidance in HMRC manuals, published on their website (see links on the right hand side) contain examples of the level and nature of home expenses that can be claimed.

A new element is term 'fixed costs' and includes mortgage interest, council tax and home insurance.

HMRC are content to allow a proportion of these costs to be claimed against the income of the business if certain criteria are met, such as:

  • The area of the home is used exclusively for business purposes for a prescribed amount of time - say, 9am to 5pm - this means that if you sit at the kitchen table working you won't qualify for the additional deductions. What the taxman is looking for is an area that has the appearance of an office - so it will contain a desk, chair, storage etc.
  • The amount claimed is reasonable in relation to the business - so you can't claim that you work 20 hours a day in the office or that the area used is a large proportion of the living area of your home.

Apart from these two provisos, you will be able to claim a percentage of the total cost of running the home.

HMRC have given a useful example of how the system operates in their manual at BIM47825 - note also that you do not have to be desk bound to get the relief:

Gordon, an architect, dedicates a room solely for use as his office between 9am and 5pm daily. The room contains a workstation, office furniture and storage for his drawings. He uses the room for an average of 4 hours each day, though often this is spread over his working 8 hour day as he has a number of regular site visits to make. In addition it is not uncommon for Gordon to accommodate clients in his office to discuss plans, outside of normal hours.

The room is available for domestic use outside of business hours and his family regularly make use of the room for around 2 hours each evening.

After apportioning costs by reference to the number of rooms in the house, Gordon calculates the room uses 300 of variable costs (electric and oil) and 600 of fixed costs (council tax, mortgage interest, insurance). In apportioning these costs by time Gordon claims 680 in total, made up of 4/6 of variable costs (200) and 8/10 of fixed costs (480).

The figures used by HMRC are very modest, and, if Gordon had a significant mortgage of, say, 300,000 on which he was paying interest at 6%, then in the example above, the amount he could deduct in respect of mortgage interest alone would be 1,440 - a tax and National Insurance saving of 590.40.

The opinions expressed are those of the author and not the programme and should be used for guidance only.

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