In order to calculate the proportion of allowable expenses for the use of part of your home for business purposes it is important to establish the facts. The amount that can be claimed will also depend on the nature of the expenses.
- Fixed costs
Mortgage interest, council tax, water rates, rent and repairs are fixed as they will not generally vary depending on the amount of work undertaken at home. If you have a study in which you work for a set period, a proportion of these expenses will be allowable on a time spent and area used basis.
If a room or area is used exclusively for business purposes this will ordinarily need to be disclosed and business rates assessed accordingly. The determining elements for business rates are the extent and frequency of business use and any modifications made to the property as a result of business use.
If business rates are due then these will be a deductible cost.
Repairs and maintenance
A proportion of the cost of general repair is allowable relative to the use of the property solely for business purposes.
Repairs or redecoration of rooms not used for business purposes are not allowable.
- Variable costs
Cleaning, heat, light and power, telephone and broadband are all variable as they are likely to change depending on the amount of work undertaken at home.
A claim can therefore be made relative to the cost attributable to business use.
A proportion of the line rental will be allowable based on total usage (incoming and outgoing business calls.) All outgoing business calls will be allowable.
If cleaning costs only extend to the part of the property used for business then a higher proportion of the total cleaning costs will be allowable rather than if the whole property is cleaned.
- Areas to be wary
HMRC will not allow claims where part of the property is being used simultaneously for business and non-business purposes.
If part of your home is used exclusively for business that will not benefit from principal private residence relief for capital gains tax on sale. If the room or area is used partly for business and partly for non-business purposes then the principal private residence relief should apply in full. HMRC will, understandably, aim to disregard very minor non-business use of a room.
As explained at the beginning, the key is the facts of each case. Please see HMRC’s examples in the link below.
The last makes the good point that the costs associated with entertaining from home, caterers and cleaners, are not allowable.