Self employed and using home as office

[SmithyBoy]

Hi everyone! Just wanted to sanity check something else my accountant always seems to brush over. We live in a 4 bed house and one of the bedrooms is a dedicated office for the business. Based on this my accountant has always put house bills through the books at 25%. I.e. he seems to add up everything spent on utilities, rent, council tax, house insurance etc etc., divides it by 4 and that's the expenses for using our home as an office. Does that seem reasonable? Always seemed quite high to me.

We've been through random audit last year and HMRC didn't question it. Have we just been lucky? I mean, there are obviously other rooms in the house, living room, dining room etc. Are there any 'official' rules for working this out or is it based on how generous HMRC are feeling if and when you get checked?

Thank you!

Will

 

[Szymon Krzyzanowski]

HMRC don’t have a formula or exact method for this. They simply say that you have to divide your costs between business and private use in a way that is "Reasonable".

The most common way to calculate the UOHAO element is to:

1. Divide your total expenses by the total number of rooms;
2. Multiply the above number by the number of rooms you use for business;
3. Multiply the above (2) figure by the percentage of time you use the room for business.

Hope this helps!

 

[MyAccountantOnline]

Hi everyone! Just wanted to sanity check something else my accountant always seems to brush over. We live in a 4 bed house and one of the bedrooms is a dedicated office for the business. Based on this my accountant has always put house bills through the books at 25%. I.e. he seems to add up everything spent on utilities, rent, council tax, house insurance etc etc., divides it by 4 and that's the expenses for using our home as an office. Does that seem reasonable? Always seemed quite high to me.

We've been through random audit last year and HMRC didn't question it. Have we just been lucky? I mean, there are obviously other rooms in the house, living room, dining room etc. Are there any 'official' rules for working this out or is it based on how generous HMRC are feeling if and when you get checked?

Thank you!

Will

I think you've been lucky HMRC didn't spot this, you should apportion costs based on the total rooms/floor space and the hours they are used. I wouldn't claim 25% of your costs.

HMRC offer some guidance here https://www.gov.uk/expenses-if-youre-self-employed

I'd ask your accountant why he's only taking into account the 4 bedrooms and ignoring the other rooms in the house, and if you do ever use the office for private use why its not apportioned to take into account private use.

 

[UK Contractor Accountant]

This is designed for use by a self-employed person in order to calculate how much to claim as a tax-deductible expense for working from home.

Calculation

Step 1 working hours

Fact find:

• What type of work do you do?
• Is the business based at your home?
• Do you do work elsewhere?
• Does the business occupy other premises?
• Do you employ any employees?
• Do they also work at your home?

Considering the responses to the above questions: for how many hours is your home actively used for work per day?

• If you also work away from home, how many hours do you work away from home per day? It is useful to know this so that you don't overclaim home use.

Step 1 total
Total hours
For how many hours is your home used for your business each day?

Step 2 working rooms

Fact find

• How many rooms are there in your house?
• How many rooms do you use wholly and exclusively for work?
• Do you use these rooms for private purposes during the evening or weekends?
• How many rooms do you use partly for work and partly for private use?
• Do you use any rooms for wholly or exclusively for work storage?

Step 2 totals

Number

A. How many rooms are there in your house?

B. How many rooms do you use wholly & exclusively for your business?

C. How many rooms have dual business/private use?

Step 3 working out your costs

Add up your costs:

Fixed costs

Mortgage interest or rent- £

Council tax - £

Water rates - £

Insurance - £

Broadband - £

Total - £


Variable costs

Electricity - £

Gas - £

Repairs and maintenance* - £

Cleaning - £

Total - £

Calculation

Full-time workers
If your total at Step 1 is more than seven hours (assuming that you work from home full-time).

Take the combined totals from Step 3 and divide by Step 2A, then multiply by (2B + 1/2 x 2C).

Where you are also using rooms privately - say at weekends or in the evening you should consider restricting the claim proportionately.

Part-timers
If you are not working full time from home you may need to restrict your claim if you are not using rooms wholly or exclusively for the business. This calculation time apportions the claim over 24 hours. It may be more beneficial to work out usage on an expense by expense basis.

If your total at Step 1 is less than seven hours:

Take the combined totals from Step 3 and divide by Step 2A, then multiply by (2B + (1/2 x 2C)). Multiply the result by your total hours at Step 1 and divide by 24.

 

[SmithyBoy]

Thanks for the replies and sorry for the delay! Was sure I'd replied... but losing my mind .