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

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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.

Aaargh!!! Which archives? Clearly not uk.business.accountancy where this is an FAQ!

This will give you a flavour and a starting point:

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.

Sorry - I just looked at the uk.finance archive. I'll definitely have a look at the NG you mentioned above.

Cheers Troy. Will give the above links a closer look.

ATB RM

In message , JF writes

I suppose the question is then, do you charge them?!

X-No-Archive: yes In message , " snipped-for-privacy@privacy.net" 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.

You should have made them from paper then, shouldn't you? ;)

RM

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

Can we read all about it in one of your novels? If so, I hope it's illustrated!

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.

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?

In message of Wed, 29 Jun 2005, Doug Ramage writes

What references are there relating to this sum of £500.

David

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."

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.

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.

David

The wording is the same, but the additional qualification of "necessarily" is absent.

In message of Wed, 29 Jun 2005, Doug Ramage writes

What wording where, please? I'm concerned I've missed something somewhere!

David

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?

RM

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".

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).