ASK AEL - saving tax when using your home for business

AS asks :- I claim through my accounts all my business expenses relating to my Practice. However, I’m finding that I spend an increasing amount of time working from home. Is there any way I can reclaim some of home household expenses including my mortgage? AEL replies : More and more practitioners now work from home to carry out the administrative chores they simply don’t have the time to do at their place of work. It should be noted that HM Revenue & Customs (“HMCE”) are never keen to grant allowances for expenditure that would have been incurred in any case, whether or not the taxpayer worked at home. HMC&E’s golden rule is that for expenditure to receive tax relief, it must be |wholly and exclusively incurred for the purposes of your business. HOWEVER, claims by practitioners will be accepted by HMC&E by concession. It is important that your expenses claimed result from a calculated proportion of your home expenses and not a round sum amount plucked from thin air. The calculation is fairly simple. Take a percentage of the house used for business and apply this to the total of certain household expenses incurred. The proportion of the home used should relate to the room or rooms that are used for business purposes. Examples that can brought into the equation are : the dining room (dining table used for working on laptop), garage (where the company car is stored overnight), loft or spare bedroom (containing 6 years of dusty papers your accountant told you to keep), the study/playroom where the PC, printer and desk may be located. Excluding bathrooms, kitchen and toilets, work out the proportion of the house that has business use from time to time. If the rooms mentioned above come to 15% of the house area, then you can claim 15% of the household expenses. But…what expenses can be claimed ? The following are the main expenses that can be included: heat & light; council tax; mortgage interest; water rates; buildings and contents insurance; maintenance & repairs. Then simply take the total costs of say £10,000 and apply the 15% proportion to arrive at your claim for “Use of Residence” (15% x £10,000 = £1,500). Finally, a few traps to avoid. If a room is converted into an office and used exclusively for business, then that part of the house is no longer eligible for Principal Private Residence relief and will now be subject to capital gains tax. It is therefore imperative that if asked by the Taxman whether there’s a particular room in the house used as an office, the answer is that there is no room used exclusively for business. This can be proved by having a spare TV in the office or by storing your old Pink Floyd LP’s in the corner of the room!