Allowable expenses you can claim tax relief against when using your own home for businesses purposes.
Some costs relate to the whole house and have to be paid even if there is no business use. These include costs such as, Council Tax, mortgage interest, insurance, water rates, general repairs and rent.
If part of the home is set aside solely for business use for a specific period then a part of these costs is allowable. It will normally be appropriate to apportion these expenses by area and time. Some particular points are considered below.
If the business use is covered by a separate policy then the cost of that policy is allowed in full, with no part of the household policy being allowed.
Otherwise, an appropriate part of the premium can be allowed.
The council tax is a tax on property. In principle it may be allowable in those instances where other property based expenses are deductible. If business use is established the appropriate proportion of the tax may be allowed under the normal rules for the deduction of expenses.
If part of the home is used solely for business then an appropriate part of the mortgage interest is an allowable deduction. Repayments of capital are not allowable.
Part of the rent is an allowable expense when the home is rented and part is used solely for business purposes.
A sole trader cannot charge a separate rent to his or her own business. This is because individuals cannot rent property to themselves. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for business purposes.
Repairs and maintenance
A proportion of the cost of general household repairs and maintenance is allowable in line with the proportion that the house is used solely for the business. Examples include the general redecoration of the exterior or repairs to the roof.
Repairs that relate solely to part of the house that is not used for the business, such as decorating a room not used for the business, are not allowable. Equally if a room is used solely for business purposes then the cost of redecorating that room is wholly allowable.
There are some expenses where the total bill may vary with the amount of business use. They include cleaning, heat and light and metered water.
If the claim is small and there is only minor business use of the home, for example the taxpayer writes up their business records at home, you may accept a claim based on any reasonable basis.
Where there is significant business use it is appropriate to apportion such expenses by reference to the facts of that usage.
The facts may result in a higher proportion of costs attributable to either business or domestic use.
For example, a cleaner may clean the living rooms but be under strict instructions to leave the office alone. In this situation, the payments to the cleaner are not an allowable expense.
Heat, light and power
A proportion of the heating and lighting costs of a room used at times solely for business purposes is allowable. The proportion should reflect the facts of usage. Where usage is minor, such as the occasional writing up of records, you may accept any reasonable estimate consistent with such minor use.
You should take into account the number and nature of any power consuming items involved. A commercial photographer working from home using specialist studio lighting will have a much higher business expense for electricity than a trader writing up records once a week in the spare bedroom.
The cost of business calls is allowable. Also allow a proportion of the line rental (based on the ratio of business use to total use). This proportion should reflect all aspects of use, including incoming calls, though in most cases reference to itemised outgoing calls will provide a reasonable and acceptable measure.
Care should be taken and a flexible approach adopted when considering the level of apportioned business expenditure, relating to all inclusive packages offered by telephone and broadband providers.
Expenditure on an internet connection (including broadband and wireless broadband) is allowable to the extent that the connection is used for business purposes. Where there is ‘mixed’ (business/non-business) use, follow the approach used for telephone rentals.
Metered water charges
In cases of heavy usage the business part of the property may be separately charged (and so fully allowable) in which event none of the domestic cost is deductible.
In the case of minor business use of the premises, such as writing up records, there is no business use of water and so none of the water charge is allowable.