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Taxman Issues New Guidance for Use of Home Claims

Newsletter issue - April 07.

The Taxman has now given some guidance on how to apportion the costs associated with your home when you use that property partially for your business. You need to consider these questions:

  1. What area is used for business compare to the total area of the property?
  2. How long is it used for and is the area used for anything else?
  3. What costs and services are consumed and are they metered?

For the first question an approximation of the number of rooms is acceptable. So if you use one room out of eight, use the fraction 1/8.

Next work out the number of hours out of 24 the room is actually used for business purposes.

Finally add up all the fixed costs associated with the property including mortgage interest, rent, insurance, council tax, cleaning, repairs and maintenance. Apportioned these costs according to the answers from questions 1 and 2. It is good to know that HMRC now fully acknowledge that mortgage interest can be claimed.

For example, say one room out of eight is used for 8 hours each day and the total fixed costs are £4,000. The business proportion of the fixed costs would be: 1/8 x 8/24 x £4,000  = £166.66.

If the room is only ever used for business purposes, then this would be 1/8 x £4,000 = £500 but there is then likely to be a reduction in the capital gains tax main residence relief on the sale of the property, which may give rise to a capital gains tax complication depending on the circumstances.

The cost of metered services can be apportioned according to area and usage, remembering that little light and heat is used while you are asleep. Telephone bills, including the line rental, can be apportioned according to the cost of business calls made, and a similar reasonable apportionment can be made for broadband connections.

When done, the total business cost must be reasonable for the use made of the property, so stand back and consider the result. If the costs are very small you can use the flat rate instead of £2 per week.

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