Home/office apportionment questions

[neilsolaris]

Hi,

I'm helping a partnership prepare their accounts, and wondered if someone could help clarify the rules regarding home/office expenses please?

I notice that they have effectively counted how many times they've used each 'livable' room in their home for business purposes, and counted that as one full day when calculating their business apportionment. When I entered it on my spreadsheet (her account was incredibly convoluted!), I can that she is claiming 660 rooms per year for business purposes, which is just impossible!

I'm aware that for any rooms with shared use, such as a living room, they should be further apportioned to reflect the business/personal use of that room.

But what about if they have a workshop, which is only ever used for business purposes? I know this is not advised because they are subject to capital allowances if they sell their house. But should they still claim the actual hours they used this room for, even though it had no other use? Or could/should they claim 100% use of this room for apportionment purposes (or a very high percentage to avoid CGT)?

Thanks for your help.

 

[MyAccountantOnline]

Hi,

I'm helping a partnership prepare their accounts, and wondered if someone could help clarify the rules regarding home/office expenses please?

I notice that they have effectively counted how many times they've used each 'livable' room in their home for business purposes, and counted that as one full day when calculating their business apportionment. When I entered it on my spreadsheet (her account was incredibly convoluted!), I can that she is claiming 660 rooms per year for business purposes, which is just impossible!

I'm aware that for any rooms with shared use, such as a living room, they should be further apportioned to reflect the business/personal use of that room.

But what about if they have a workshop, which is only ever used for business purposes? I know this is not advised because they are subject to capital allowances if they sell their house. But should they still claim the actual hours they used this room for, even though it had no other use? Or could/should they claim 100% use of this room for apportionment purposes (or a very high percentage to avoid CGT)?

Thanks for your help.

Have a read here - https://www.gov.uk/hmrc-internal-ma...ortion,used for business purposes exclusively

 

[neilsolaris]

Have a read here - https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47815#:~:text='… it is possible to apportion,used for business purposes exclusively

Many thanks Nicola, that's very useful.

I'm still not 100% sure about a room that has no personal use. Would you consider it fair to claim just the time per day/per year it is being used, but not claim for the time it is vacant? Or claim for 100% of its fixed costs share per year, and only variable costs per use of room? Or some other way?!

 

[Newchodge]

Many thanks Nicola, that's very useful.

I'm still not 100% sure about a room that has no personal use. Would you consider it fair to claim just the time per day/per year it is being used, but not claim for the time it is vacant? Or claim for 100% of its fixed costs share per year, and only variable costs per use of room? Or some other way?!

Do you have to consider why the room exists - is it purpose-built for the business or is it a spare room that, if not for the business use, would be used for personal storage. Indeed, when you say it is vacant do you mean there is no personal storage in there? That would be quite unusual.

 

[neilsolaris]

Do you have to consider why the room exists - is it purpose-built for the business or is it a spare room that, if not for the business use, would be used for personal storage. Indeed, when you say it is vacant do you mean there is no personal storage in there? That would be quite unusual.

I see, in my mind, I was thinking that personal use meant that it was physically used by a person. I hadn't considered that personal use could also mean being used for personal storage.

 

[MyAccountantOnline]

Many thanks Nicola, that's very useful.

I'm still not 100% sure about a room that has no personal use. Would you consider it fair to claim just the time per day/per year it is being used, but not claim for the time it is vacant? Or claim for 100% of its fixed costs share per year, and only variable costs per use of room? Or some other way?!

What is the clients business, what work do they do at home, and what costs are you looking at apportioning and how much are they?

 

[neilsolaris]

What is the clients business, what work do they do at home, and what costs are you looking at apportioning and how much are they?

It is a combination of providing therapy, and using rooms as offices.it would be for utility and council tax costs they'd like to apportion (about £4k in total).

 

[MyAccountantOnline]

It is a combination of providing therapy, and using rooms as offices.it would be for utility and council tax costs they'd like to apportion.

How many rooms are in the house and what is the total floor area, and how many hours are they actually working in each room and what is the floor area of those rooms? Also how much in £s are you looking at apportioning for each of the costs?

 

[WaveJumper]

How many rooms do you actually need to use as offices on top of having a therapy room

 

[neilsolaris]

How many rooms are in the house and what is the total floor area, and how many hours are they actually working in each room and what is the floor area of those rooms? Also how much in £s are you looking at apportioning for each of the costs?

6 rooms, and I can find out all those other specific answers. If you're able to offer an opinion on how exactly you'd apply the rules in this scenario, that would be very helpful. I'm capable of doing the arithmetic, once I know how to apply the rules.

It's just the rooms without personal use I'm really enquiring about, although I take into account rooms with personal belongings in as Cyndy suggested.

 

[MyAccountantOnline]

6 rooms, and I can find out all those other specific answers. If you're able to offer an opinion on how exactly you'd apply the rules in this scenario, that would be very helpful. I'm capable of doing the arithmetic, once I know how to apply the rules.

It's just the rooms without personal use I'm really enquiring about, although I take into account rooms with personal belongings in as Cyndy suggested.

I'll happily give my opinion but I'd need all the details listed to do so. It may for example be that when you look at floor area basing an apportionment solely on hours worked may be totally unjust. It may also be that the amounts being claimed are insignificant. It really does depend on the individual case.

In advance if you haven't already done so do take a look at the examples in the link I gave you they really should help.

 

[neilsolaris]

How many rooms do you actually need to use as offices on top of having a therapy room

I will find out. Is it possible to give generic answers regarding offices with no personal use, given different scenarios? The only point I'm not 100% clear on, is rooms with no other use except business use. For example, with a house with 6 liveable rooms of equal size, one of which is only ever used as an office, some would apportionment 1/6 of the allowable household costs to this room as a business cost. Are there any other considerations in this scenario?

 

[neilsolaris]

I'll happily give my opinion but I'd need all the details listed to do so. It may for example be that when you look at floor area basing an apportionment solely on hours worked may be totally unjust. It may also be that the amounts being claimed are insignificant. It really does depend on the individual case.

In advance if you haven't already done so do take a look at the examples in the link I gave you they really should help.

Thanks Nicola. Yes, it's difficult to give an opinion without knowing the full facts. I will seek to find out.

 

[fisicx]

My accountant told me if you are claiming a room solely for business use within a domestic dwelling then it changes the purpose of the property and there are greater tax liabilities. It also affects insurance and other levies.

Basically, try not to have a room just for business.

 

[Paul Kelly ICHYB]

...and this is why you employ an accountant!

 

[neilsolaris]

I'm reading conflicting advice online regarding the household costs you can claim for.

Most say that council tax and interest on mortgage payments are allowable.

However, HMRC state that these costs aren't eligible, because they would be incurred whether the business happened or not. Have I interpreted the rules correctly by HMRC. I have always claimed part of my council tax for my own business!

 

[MyAccountantOnline]

I'm reading conflicting advice online regarding the household costs you can claim for.

Most say that council tax and interest on mortgage payments are allowable.

However, HMRC state that these costs aren't eligible, because they would be incurred whether the business happened or not. Have I interpreted the rules correctly by HMRC. I have always claimed part of my council tax for my own business!

Where have you seen that @neilsolaris ?

 

[neilsolaris]

Where have you seen that @neilsolaris ?

BIM47820 - Specific deductions: use of home: specific expenses - HMRC internal manual - GOV.UK

www.gov.uk

It was here. But I can see now I misinterpreted what it said about fixed costs.

 

[MyAccountantOnline]

@neilsolaris I mean no disrespect but you say you are helping a partnership prepare their accounts, and are asking alot of questions about allowable expenses etc., would it perhaps be best to suggest the partners use an accountant now? You've got significant potential for costly mistakes.

 

[neilsolaris]

@neilsolaris I mean no disrespect but you say you are helping a partnership prepare their accounts, and
are asking alot of questions about allowable expenses etc., would it perhaps be best to suggest the partners use an accountant now? You've got significant potential for costly mistakes.

Yes, maybe.

 

[MyAccountantOnline]

BIM47820 - Specific deductions: use of home: specific expenses - HMRC internal manual - GOV.UK

www.gov.uk

It was here. But I can see now I misinterpreted what it said about fixed costs.

Yes you misinterpreted it.

 

[DontAsk]

My accountant implied the apportionment method was deprecated and i should just claim the weekly allowance.

 

[MyAccountantOnline]

My accountant implied the apportionment method was deprecated and i should just claim the weekly allowance.

I wouldn't say apportioning costs was deprecated.

Simplified expenses can be an option for some; it's definitely quicker and easier to calculate. In my experience it doesn't generally give the best tax saving.

 

[WaveJumper]

Yes, maybe.

To be honest I would say an absolute maybe .......... and my overriding feeling is this sounds more like a "total business concern" running from a domestic property and is asking for all sorts of problems some of which have been covered in previous posts above