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Using your home for business

As a self-employed person you may use your car or van for private journeys as well as for business trips. HMRC guidance has always been to include the portion of the vehicle’s costs in your accounts based on the business miles compared to the total mileage. However until recently there has been little guidance on how to apportion the costs associated with using your home for your business.

The main point in the new guidance is that HMRC are now explicitly allowing a proportion of the fixed costs associated with the home including mortgage interest, insurance, repairs and maintenance.

You need to consider these questions:
1 - What area is used for business compared to the total area of the property?
2 - How long is it used for and is the area used for anything else?
3 - What fixed costs have been incurred over the year?
4 - What other 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 time in each day the room is typically used for business purposes and the time used for other purposes. Also consider whether the room has a primary purpose of being used for your business (eg an office) or is it primarily for some other use (eg a bedroom).

Then comes the tricky bit. A proportion of the fixed costs will be allowed according the answers from questions 1 and 2. Say one room out of eight is a bedroom and an office. It is used for 8 hours each day as an office and the total fixed costs are £4,000. A reasonable business proportion of the fixed costs may be: 1/8 x 8/24 x £4,000 = £167. Alternatively if the room is rarely used as a bedroom, a reasonable proportion may be 1/8 x £4,000 = £500.

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 compared to the total cost of all calls, and a similar reasonable apportionment can be made for a broadband internet connection.
When this has been 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 small you can use a reasonable estimate, such as £2 per week.

The cost for the use of your home can be claimed either as part of your accounts expenditure or on your self assessment tax return. If you are concerned you are not taking advantage of this tax saving opportunity contact Sarah Nickols in Coventry on 02476 554310 or Jan Hornby in Solihull on 0121 711 2468. They will be able to run through the figures with you as they prepare your tax return or business accounts.

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

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