Some home expenses may be allowable for business. It can be confusing to work out what is allowable as it depends on the individual circumstances in each case.
Here is a guide on specific expenses that can be claimed for use of your home.
- What is an “Allowable Expense”?
An expense is allowable as a deduction only if it is incurred “wholly and exclusively” for business purposes. Allowable expenses for use of your home as a business premises fall broadly into two categories, fixed costs and running costs.
- Home Expenses – Fixed Costs
Costs relating to the whole house have to be paid whether or not there is any business use. These include Council Tax, mortgage interest, insurance, water rates, general repairs and rent.
If part of the home is set aside for business use for a specific part of the day, then a part of these costs are an allowable expense. These costs are normally apportioned by area and time.
Council Tax, Mortgage Interest And Rent – Once you establish the proportion of your home used for business purposes and the number of hours each day of the business use, you can apportion these expenses appropriately. Capital repayments are not allowable, and a sole trader cannot claim a separate rent allowance from his or her own business. Detailed guidance is available on the HMRC website on council tax, mortgage interest, and rent.
Insurance – If the business use is covered by a separate policy then that policy is allowed in full, with no part of the household policy being allowed. Otherwise an appropriate proportion of the premium is allowed.
Repairs and Maintenance – A proportion of the cost of general household repairs are allowable in line with the proportion of the house that is solely used for business. However, repairs that relate solely to a part of the house not used for the business are not allowable.
- Home Expenses – Running Costs
Some household expenses may increase with business use, including cleaning, heat and light and metered water.
Cleaning – The allowable expense proportion of cleaning costs depends on the circumstances. For example, a cleaner may clean the living rooms, under strict instructions not to go in the office, in which case payments to the cleaner are not an allowable expense.
Heat, Light and Power – A proportion of the business use must be calculated in relation to total use. The calculation will be in proportion to the type of use, eg a photographer using a room as a studio with specialist lighting, compared to a blogger using a spare bedroom, and also depending on the amount of time compared to the total time each day that the house is heated and lit.
Telephone and Internet – The cost of business calls is allowable as well as a proportion of the line rental and internet connection to the extent that they are used for business purposes.
Metered Water Charges – In the case of minor business use of the premises, there is no business use of water, so none is allowable.
- Tips For Managing Your Expenses
It’s recommended that you:
- Keep records and receipts of all expenses claimed.
- Make reasonable claims for business use so that you are happy you can justify to an Inland Revenue inspector if enquiries are made.
- Complete your expenses as soon after the year end so that this does not delay completion of your tax return.
- Try not to use estimated expenses as these could be less than the actual amount spent and an inspector may disallow if these are not supported by evidence.
What is allowable depends on the individual circumstances and it’s always best to ask if you’re unsure. 510.404.0054 or Theresa.Cru@gmail.com