Capital Gains & Business Rates on "use of home" for self-employed

Myself and my partner have purchased a new home and I'm looking at the
possibility of setting up a home-based business in the new property.
Having had a look at the archives I see that there are potential issues
relating to working from home, both ongoing during the tenancy (in terms
of business rates) and when selling on the property (in terms of capital
gains on the portion of the property used exclusively for your business).
I'd like to be able to quantify these costs so that I can judge whether
the risks outweigh the benefits in my situation.
Firstly, if I were to run a business from home that NEITHER required
customers visiting the premises NOR required significant additional
refuse collection (e.g. a purely internet-based business that is only
likely to generate a small amount of scrap paper) what is the council's
view likely to be regarding business rates? Also, will any business
rates levied be IN ADDITION TO or INSTEAD OF council tax? i.e. If the
council were to levy business rates on that part of the property used
for a business, will they deduct an appropriate percentage from the
C-Tax to account for the fact that only a percentage of the property is
Secondly, let's assume that I set up a boxroom in the house as an office
and claim, say, £500 against the profits of the business for "use of
home"? (this amount seems to be standard practice among many
accountants) Am I right in assuming that I may have to prove this
deduction at the drop of a hat, or does HM Treasury allow such a figure
as a fair estimate for a single-room home office in the same way that
they allow 10% of rent as a rough and ready depreciation charge for
property letting businesses?
I understand that having a dedicated office in the house potentially
excludes that portion of the house from PPR CGT exemption upon sale of
the property. To get a handle on the likely extent of the CGT liability,
I'd like to put forward a hypothetical situation with actual figures and
ask what the likely tax bill would be (based on today's rules, of course
- I know they could change in future). If I were to live in the property
for 10 years and the percentage of profit on the sale allocated to the
office was £100K, how would the CGT bill be calculated?
Also, I am currently looking at the self-employed pages on the tax
return and they ask for an address for the business. What consequences
might there be if I were to supply my home address for the "business" in
question purely for the purpose of the tax return? Ditto if I were to
voluntarily register for VAT status using the same address. Are there
other types of address that would be acceptable to use as registered
business addresses, thus avoiding the need to use your private residence
on such forms, with the all the financial complications that might involve?
Reply to
Reestit Mutton
X-No-Archive: yes
In message , Reestit Mutton writes
Make sure your usage is not exclusively for business use. I'm using my purpose-built office on my house to write this message.
I've been trading from my home address for 35-years and have never encountered financial complications. I suppose I might have problems with neighbours if my business involved the use of a stamping machine or if I had a stream of callers. But I don't. There's only little old me and me and my keyboard, and I hardly have visitors except when it's hot and they usually turn up on my doorstep wanting to use the pool.
Reply to
Aaargh!!! Which archives? Clearly not where this is an FAQ!
This will give you a flavour and a starting point:
formatting link
In sunmmary:
Assuming you are not a doctor with a designated surgery but merely a bloke with a computer in a room where the kids can do their homework:
1) Forget business rates and CGT problems. 2) Anything you can get invoiced directly to the business, dedicated phone etc, you can probably claim. 3) All other expenses - well spotted! - £500 is the *maximum* you can claim, £10 a week.
Reply to
Troy Steadman
Sorry - I just looked at the archive. I'll definitely have a look at the NG you mentioned above.
Cheers Troy. Will give the above links a closer look.
Reply to
Reestit Mutton
X-No-Archive: yes In message , "" writes
Good heavens, no. That would involve me in all manner of local authority jobsworth rules and regs. A few non-swearing, well-behaved kids from a small, select group of neighbours. Sometimes their mothers if I'm lucky. On one occasion I even made an impromptu swimsuit for one young mother. It's hopeless off-topic but it's hot...
Itsy Witchy J-Cloth Bikini
It was very hot and Caroline looked longingly at the swimming pool and said that she wished that she had thought to bring her swimsuit. After an experimental, much-shrieking and much- giggling experiment pouring her ample bits into one of my wife's costumes (which was heard and not seen [sniff]) Caroline said that the notion wasn't on because she couldn't handle the lustful stares of our other guests -- and the blokes would've goggled, too.
Whereupon I volunteered to make Caroline a two-piece cozzy -- well -- four pieces actually. Ingredients: 4 J-cloths and a stapling machine that flattens staples properly.
Bottom. Fold two clothes into triangles and place them apex to apex with a generous overlap to form the gusset. Staple gusset ensuring that the staples are safe. The four free corners are then secured on the hip, remembering to place girl inside first.
The top is virtually identical except that the two triangles are placed side-by-side and stapled. As with the bottom the ends are tied together.
I would like to say that my foray into the world of high fashion was successful. Sadly this was not the case. Although the cozzy looked stunning on her when dry, J-Cloths undergo a strange transformation when wet: they treble their weight and become as unmanageable as Caroline's temper. Luckily she couldn't catch me -- not with sopping-wet knickers trying to ensnare her ankles.
Reply to
Okay - while there is evidence of explicit exemption from Business rates for a single-room office in a residential property I haven't been able to find any specific guidance for PPR CGT exemption upon sale of the house.
Is there any *official* guidance on this or is £500pa just a finger in the air figure that has never triggered a capital gains charge by HM Tax Inspectors thus far?
If it's a finger-in-the-air figure, does anyone have anecdotal evidence of amounts that have been claimed which eventually triggered a capital gains charge down the line?
cheers, RM
Reply to
Reestit Mutton
It is the *exclusive* use of a room(s) which impacts the CGT exemption - although there still might not be an CGT payable.
The 500 pa. relates to Income Tax and can be higher if the additional costs can be justified.
Reply to
Doug Ramage
Quite so, but see also below.
I think what he meant was that if his CGT return (upon sale in due course) were checked, and he had reported 100% PPR use to get full exemption, whether a keen junior inspector might be disposed to look back to see whether he had claimed excessively for business use of part of home, and would then try to assert that his claim of 100% PPR use was false.
Would not pretty well exclusive use be a pre-requisite in order be able to claim non-trivial amounts against income? Would such claims not fail the dual-use tests?
Reply to
Ronald Raygun
In message of Wed, 29 Jun 2005, Doug Ramage writes
What references are there relating to this sum of £500.
Reply to
David Floyd
It is more like 10 p.w. being the upper limit that the IR will tolerate.
Excerpt from Tax Bulletin 68 (December 2003) :
"The 2 per week figure is not a maximum, and greater amounts can be paid where the employer provides evidence to justify them. There are two ways to do this. The employer can agree in advance with their Inland Revenue office on a scale rate payment that is calculated to do no more than reimburse the average additional costs that the employees are meeting while working at home. It may be useful to agree that the scale rate payment can be increased annually in line with inflation. If the employer has agreed a scale rate payment based on reasonable estimates of additional household costs derived from records of costs kept by employees it is not necessary for employees to keep subsequent evidence of costs incurred."
Reply to
Doug Ramage
The "wholly and exclusively" test has to be read in the light of the possibly of "apportionment".
Certain items have held by the courts not to be capable of apportionment - lunches, clothes, medical expenses etc. However, room useage, car useage etc show that certain expenditure can be apportioned.
Reply to
Doug Ramage
In message of Wed, 29 Jun 2005, Doug Ramage writes
I thought we were talking about Use of Home as Office for the Self Employed, the above is about employees. Sorry about that.
Reply to
David Floyd
In message of Wed, 29 Jun 2005, Doug Ramage writes
What wording where, please? I'm concerned I've missed something somewhere!
Reply to
David Floyd
Yup...that pretty much sums it up.
What part of the "use of home" costs would be refused here?
Surely there is still theoretically additional utilities and increased insurance (if appropriate household insurance is sought) resulting from conducting business at home? Maybe the CTax and mortgage interest will be excluded on the basis that I cannot associate the cost of 1 out of N rooms in the house to the business.
However, am I to assume from Doug's response that an office without, say, a fold down bed would automatically place me in a CGT trap for a portion of the property (even if tapering relief on business assets and CGT allowances etc... might eventually zero the bill)? Or could it be argued that the office was also available for personal use?
However, I guess it's impossible to claim exclusivity AND duality in the same breath so surely it's actually impossible to claim against ANY of the mortgage and council tax costs (or rely on doing so to justify your return, should it ever be questioned) without necessarily risking the possibility of a CGT bill somewhere down the line when you move home.
Incidentally, I have also heard variously that
(a) round figure claims in your tax returns can arouse suspicions and increase the likelihood of an investigation (b) basing your claim on a fixed percentage of all household costs can place you in what's known as a "rental trap" whereby CGT will automatically apply on the same portion of the proprty upon sale.
Is this just bunkum or is there some (potential) truth to it?
Reply to
Reestit Mutton
He means the wording in the relevant income tax acts. An employee can claim as deductions from income any expenses incurred "wholly, exclusively, and necessarily" for business purposes, whilst the corresponding bit for the self-employed uses only the wording "wholly and exclusively".
Reply to
Ronald Raygun
Thank you, Ronald - I should have made that clearer.
The word "necessarily" is a Schedule E restriction, under section 336 ITEPA 2003.
It did not appear in the old Schedule D legislation for the self-employed (section 74(1)(a) ICTA), nor the new legislation (section 34(a) ITTOIA 2005).
Reply to
Doug Ramage

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