Rent tax deductable?

[Cloud]

If one decided to run a business from home inside a 2 bed apartment costing £1,000 p/m rent, and used 1 of the rooms solely for business use, would any of this expense be tax deductable towards the business?

eg. 50% of home is used for business, £500 business expense per month

Thanks

 

[spencergate]

is it a two room apartment, or a two bedroom apartment?

If the apartment has two bedrooms, but other living accommodation, you are not using 50% of it for business, so wouldn't be able to claim 50% as a business expense.

I would also be surprised if the rental agreement didn't preclude use of the property as a business property.

 

[Cloud]

Hi Spencergate,

Thanks for your reply.

The apartment contains 4 rooms:

- 2 bedrooms
- 1 bathroom
- 1 living area with open kitchen

The business would be using up 1 of the bedrooms as an office.

I'm moving out of a commercial property and planning on working from home full time. Are there any tax savings to be made here? Thanks.

 

[eccountants]

Hi Cloud,

Spencergate's point re. the conditions of the rental contract are quite correct; I personally have never seen a tenancy agreement which didn't prohibit business use.

However, in reality, that would mean that nobody who rents their home would be able to work from home, and that really isn't the intention of the clause in the contract which, as it is with my tenants, is really there to stop anyone from turning the house into a business premises with customers coming and signs being put up... etc. I've never heard of anyone being evicted for breaking the terms of their tenancy by working from home.

In terms of the expense, opinion is divided on this one and you will have some advice that it cannot be done. However, the other side of the argument (which is the side that I tend toward) is that it is appropriate to set against the income of your business any expenses which have been incurred in generating those revenues.

So in your case, if you set aside one room out of four purely for the use of your business, then it is not unreasonable to allocate 1/4 of your rent as an expense in the business. Of course if you also use that room for non-business purposes then you'd need to reduce that proportion.

In addition, it is common to include an allocation not only of the rent, but also of the heating, water and council tax costs.

The key issue is to be reasonable here, it's not about 'getting back as much as possible', it's about making a fair claim for the reasonable costs which you have incurred in the running of your business.

If you're moving out of commercial premises then, assuming your turnover was constant (which I suspect is unlikely, but that is a separate matter), your profit will be higher and HMRC will be receiving a larger remittance anyway.

 

[Cloud]

Hi Cloud,

Spencergate's point re. the conditions of the rental contract are quite correct; I personally have never seen a tenancy agreement which didn't prohibit business use.

However, in reality, that would mean that nobody who rents their home would be able to work from home, and that really isn't the intention of the clause in the contract which, as it is with my tenants, is really there to stop anyone from turning the house into a business premises with customers coming and signs being put up... etc. I've never heard of anyone being evicted for breaking the terms of their tenancy by working from home.

In terms of the expense, opinion is divided on this one and you will have some advice that it cannot be done. However, the other side of the argument (which is the side that I tend toward) is that it is appropriate to set against the income of your business any expenses which have been incurred in generating those revenues.

So in your case, if you set aside one room out of four purely for the use of your business, then it is not unreasonable to allocate 1/4 of your rent as an expense in the business. Of course if you also use that room for non-business purposes then you'd need to reduce that proportion.

In addition, it is common to include an allocation not only of the rent, but also of the heating, water and council tax costs.

The key issue is to be reasonable here, it's not about 'getting back as much as possible', it's about making a fair claim for the reasonable costs which you have incurred in the running of your business.

If you're moving out of commercial premises then, assuming your turnover was constant (which I suspect is unlikely, but that is a separate matter), your profit will be higher and HMRC will be receiving a larger remittance anyway.

Hi eaccountants,

Thanks very much for the helpful post - that's pretty much how I assumed it would work.

You mention that opinions are divided - is this the case with HMRC as well?

I'm only looking to make a fair claim and would like to follow the rules as tightly as possible.

I will also be speaking to my accountant but wanted to get other peoples take on this.


Thanks very much.

 

[eccountants]

Hi eaccountants,

I'm only looking to make a fair claim and would like to follow the rules as tightly as possible.

Thanks very much.

Well this is exactly the point and as long as you can show that you have calculated the amount accurately and used appropriate proportions you should have no reason to worry.

You mention that opinions are divided - is this the case with HMRC as well?

There are some accountants who prefer to be, shall we say, more prudent on the issue and that's really all I meant. HMRC have published specific guidance though, which even goes as far as giving a number of specific examples.

I'm a very new member so can't currently post links, but to quote HMRC, "If part of the self-employed person’s home is set aside solely for business use for a period, they can claim as a deduction the costs they incurred on that part during that period."

Also: "… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure."

I should just clarify my earlier post (as highlighted by these quotes) you do also need to time-apportion the expense, so if the room is unused for 50% of the time, you need to restrict the expense by 50% too. I'll add some links in a while to help illustrate the situation.

 

[eccountants]

Ahh, I think I'm there with the linking privileges!

See here for the general rule, here for some specific guidance and here for some examples.

 

[MyAccountantOnline]

If one decided to run a business from home inside a 2 bed apartment costing £1,000 p/m rent, and used 1 of the rooms solely for business use, would any of this expense be tax deductable towards the business?

eg. 50% of home is used for business, £500 business expense per month

Thanks

Will you be a soletrader or trade via a limited company? Unless I missed this from one of the answers from a quick scan no one has mentioned this and it does make a difference in how tax relief works.

 

[BobBuilder]

you do also need to time-apportion the expense, so if the room is unused for 50% of the time, you need to restrict the expense by 50% too.

I don't think that's correct.

If the room is used for something else apart from business use then I could accept that it would be time apportioned. However if a room in a flat is used solely for business purposes and that room is not used for anything else then the proportion of the flat that the room takes up must be 100% deductable. Just because an office lays empty at night doesn't mean that it's not tax deductable, surely?

 

[Cloud]

Thanks very much for the help eaccountants.

Nicola - the business is a sole trader. Will the current advice still be relevant?

Many thanks.

 

[MyAccountantOnline]

Thanks very much for the help eaccountants.

Nicola - the business is a sole trader. Will the current advice still be relevant?

Many thanks.

Yes the links eccountant gave you are just what you need

 

[spencergate]

Rent

Part of the rent is an allowable expense when the home is rented and part is used solely for business purposes.

A sole trader cannot charge a separate rent to his or her own business. This is because individuals cannot rent property to themselves. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for business purposes

From the HMRC documentation

 

[Cloud]

From the HMRC documentation

That's great - well that sums it up perfectly, thanks.

Now just to work out exactly what proportion of the apartment is used solely for business use.

 

[eccountants]

Yes Nichol's point is valid, I had thought you'd said you were a sole trader but Nicola rightly points out that you'd not yet said. The above is specifically for sole traders, so it does apply to you.

 

[eccountants]

I don't think that's correct.

If the room is used for something else apart from business use then I could accept that it would be time apportioned. However if a room in a flat is used solely for business purposes and that room is not used for anything else then the proportion of the flat that the room takes up must be 100% deductable. Just because an office lays empty at night doesn't mean that it's not tax deductable, surely?

To be honest I quite agree - if you don't use it for any other reason then I don't think it's unreasonable to include 100% in time terms as a business expense as you mention. However, a couple of the examples from HMRC's guidance do mention allocating the expense according to the time the room is actually used for business purposes, so I thought it appropriate to mention that here, and you could also argue that if you didn't have the business, you would still have the room in the house so that 'unused' element is not allowable though, as I say, I do actually tend to agree with the sentiments of this comment, I'm just presenting both sides.

At the end of the day there is no hard-and-fast set of rules on claiming this sort of expense, so the best advice I can give is to be reasonable in the expense you calculate, be fairly scientific so that you can justify the expense, and unless you have a visit from an unreasonable inspector you won't have a problem.

 

[Abacus Accountants]

I don't think that's correct.

If the room is used for something else apart from business use then I could accept that it would be time apportioned. However if a room in a flat is used solely for business purposes and that room is not used for anything else then the proportion of the flat that the room takes up must be 100% deductable. Just because an office lays empty at night doesn't mean that it's not tax deductable, surely?

Bob, you can claim for part of your home being used solely for business purposes but in theory this would leave you at risk of that part of your home being chargeable to business rates and capital gains tax. A dual purpose room avoids this issue.

 

[BobBuilder]

Bob, you can claim for part of your home being used solely for business purposes but in theory this would leave you at risk of that part of your home being chargeable to business rates and capital gains tax. A dual purpose room avoids this issue.

Yes that's a useful reminder for people claiming expenses relating to a property they own rather than rent.

Do you have a source to show that business rates are not payable if a property is used partly for non-business use?

 

[Anna Chandley]

The Valuation Office Agency website has some good examples of when they would charge business rates on domestic property used for business.

http://www.voa.gov.uk/publications/public_fact_sheets/working_from_home.html

 

[stphnstevey]

Yes that's a useful reminder for people claiming expenses relating to a property they own rather than rent.

Do you have a source to show that business rates are not payable if a property is used partly for non-business use?

I believe if it is used only partly for business and partly for personal use (eg in the evening), then business rates and capital gains are not effected