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Expenses - room
Thread poster: clairemcn

clairemcn
United Kingdom
Local time: 08:28
French to English
+ ...
Sep 28, 2013

Hi everyone,

I've read that you can claim business expenses relating to rent/bills if you work from home and have a space dedicated to work. I was wondering if anyone had any idea what I could do in this situation. I was renting a shared flat in the last tax year, which had 4 bedrooms, a living room, kitchen and shared bathrooms. My partner and I lived in one room and we also rented another bedroom which I used as a home office. The rent we paid for that room included bills. Would I be able to claim any expenses for this?

I would ring HMRC, but can't face being put on hold for 30+ minutes, as I was the last couple of times I rang. Would anyone know if it would be worth looking into expenses relating to my home office?


 

Louisa Berry
United Kingdom
Local time: 08:28
Member (2009)
German to English
+ ...
Yes Sep 28, 2013

Yes you can, there used to be a really helpful work sheet on HMRC website explaining it but it doesnt seem to be there anymore..

Sorry to be of little help


 

philgoddard
United States
Member (2009)
German to English
+ ...
Here you go Sep 28, 2013

http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

 

Tom in London
United Kingdom
Local time: 08:28
Member (2008)
Italian to English
Yeah Sep 29, 2013

clairemcn wrote:

Hi everyone,

I've read that you can claim business expenses relating to rent/bills if you work from home and have a space dedicated to work. I was wondering if anyone had any idea what I could do in this situation. I was renting a shared flat in the last tax year, which had 4 bedrooms, a living room, kitchen and shared bathrooms. My partner and I lived in one room and we also rented another bedroom which I used as a home office. The rent we paid for that room included bills. Would I be able to claim any expenses for this?

I would ring HMRC, but can't face being put on hold for 30+ minutes, as I was the last couple of times I rang. Would anyone know if it would be worth looking into expenses relating to my home office?


Yeah -HMRC used to be so good, but government cutbacks have reduced the telephone help service to the level of "almost completely useless".

My accountant's advice is that if you use a space in your apt. or house as your office, then you should make a reasonable calculation and register that proportion of your rent and bills as non-taxable expenses. I am advised that since there are no specific rules about how to do this calculation, it is up to you to ensure that the calculation is in fact *reasonable*, so it would be wise to write down how you've worked it out and file it along with your other accounting documents.

In your case it would be a proportion of all the costs relating to the room you used as your office: rent, electricity, etc.

NB my accountant also advised me that only a proportion of *rent* is deductible, not of a *mortgage*, since rent is a genuine outgoing but a mortgage is payment towards the acquisition of an asset.

PS (slightly off-topic) I quote from the report on HMRC customer service performance following investigation by the Public Accounts Committee (led by the redoubtable Margaret Hodge):

“HMRC’s ‘customers’ have no choice over whether or not they deal with the department. It is therefore disgraceful to subject them to unacceptable levels of service when they try to contact the department by phone or letter.
“In 2011-12, 20 million phone calls were not answered. It cost the callers £136 million while they waited to speak to an adviser. And, against its target of responding to 80% of letters within 15 days, the department managed to reply to just 66%. This is an abysmal record."

To read the full report, go to http://tinyurl.com/c427dyx

[Edited at 2013-09-29 10:42 GMT]


 

Hazel Underwood  Identity Verified
United Kingdom
Local time: 08:28
Member (2005)
German to English
+ ...
Divide by number of rooms Sep 29, 2013

Hi Claire,

The "reasonable" way my husband (and accountant!) works out mine is by dividing bills by the number of habitable rooms in the house (i.e. excluding bathrooms/toilets).

Seems to have worked for the past 10 years anyway!

Hope this helps!

Hazel


 

clairemcn
United Kingdom
Local time: 08:28
French to English
+ ...
TOPIC STARTER
Sharing a flat Nov 10, 2013

Hi everyone,

Thanks for the replies and sorry for my late reply (totally snowed under right now!)

I have had a look at the website but can't see any mention of my exact situation. My partner and I were paying rent for 2 rooms of a shared flat (one room was our bedroom, the other my office), with the other flatmates paying rent for their rooms. Does this make any difference to my calculations?

Another complication is that we don't have financial records of rent transfer, as we used online banking and then closed our Spanish bank accounts. We only really have our rental contracts as proof - would this be acceptable?


 

Tom in London
United Kingdom
Local time: 08:28
Member (2008)
Italian to English
My suggestion Nov 10, 2013

clairemcn wrote:

Hi everyone,

Thanks for the replies and sorry for my late reply (totally snowed under right now!)

I have had a look at the website but can't see any mention of my exact situation. My partner and I were paying rent for 2 rooms of a shared flat (one room was our bedroom, the other my office), with the other flatmates paying rent for their rooms. Does this make any difference to my calculations?

Another complication is that we don't have financial records of rent transfer, as we used online banking and then closed our Spanish bank accounts. We only really have our rental contracts as proof - would this be acceptable?


Rental costs: so long as you keep a copy of the rental contract with your accounts, and so long as you can provide evidence of the amounts you paid (bank statements would do) I think that would be enough evidence. Thus your monthly bookkeeping should include a page headed "Office Rent" on which you would record the amount you paid, cross-referring it to the relevant item in your bank statement for that month. In your monthly expenses calculation you would record that amount in the appropriate column(s). Any amounts in Euro should be converted to GBP using the exchange rate on that particular date. You can find historic exchange rates on the Internet.

Since you did online banking you should have downloaded all the statements before closing the account. If you didn't, you're sunk since you will not be able to prove that you made those payments unless you have receipts for them. If you cannot prove that you made those payments, and what they were for, it would be inadvisable to record them as "expenses"; HMRC might not believe you.

HMRC asks you to make a "reasonable" calculation. By "reasonable" I assume they mean "based on human reasoning" and of a kind that a Tax Inspector, should s/he decide to go through your accounts, would find acceptable. Anything in Spanish would need to be translated.

Other expenses: my suggestion would be: calculate the area of your office as a proportion of the total floor area of the flat (if you can remember !) Use the same proportion to work out the amount of electricity and water bills that you could legitimately consider as work-related expenses.

OMG I am beginning to sound like my accountant !

To sum it all up: you need to be able to *prove* to HMRC that what you say about your expenses is true. If you can't, then you shouldn't claim those expenses.

[Edited at 2013-11-10 19:36 GMT]


 

clairemcn
United Kingdom
Local time: 08:28
French to English
+ ...
TOPIC STARTER
Expenses for room Dec 7, 2013

Thanks for all your help. Unfortunately, we only have proof of payments for some months and not others (we were robbed in Spain and lost a lot of paperwork). We do have a rental contract for the whole period, but I assume this wouldn't be enough and that HMRC would want proof that the rent was actually paid?

I was thinking of just putting down the months we have proof for as expenses and accepting that we don't have enough evidence for the other months...would that work?


 

Katalin Horváth McClure  Identity Verified
United States
Local time: 03:28
Member (2002)
English to Hungarian
+ ...
Does it worth it? Dec 8, 2013

I am not sure how much money you are talking about at the end, as "your apartment" is really only half of an apartment, and you are talking about only one room in that half, and on top of it, you only have a few months of proven payment. ?
In addition to proving that you actually paid those monies, you also have to be able to prove that the room you used as an office was ONLY used as an office, and nothing else. For example, if you used it as an office during the day, but someone slept there at night, or stayed there to watch a movie, etc., than the taxman may have an issue with you deducting the room's full portion of the rent. Alternatively, you could count only for X hours out of the 24 hours per day, taking another proportion of the figure you got for the whole room.
So, at the end, you may end up with a number so small that you need to see whether the whole thing is worth it.
After all, the tax advantage is just a portion of that money (depending on your tax bracket). If the taxman finds anything questionable in your tax return, you may be subject to audit, and that may end up costing you more than what you can save.

Again, it all depends on the actual figures, so think about what your specific figures would add up to.
Katalin


 

Tom in London
United Kingdom
Local time: 08:28
Member (2008)
Italian to English
This is all speculation on your part Dec 8, 2013

clairemcn wrote:

Thanks for all your help. Unfortunately, we only have proof of payments for some months and not others (we were robbed in Spain and lost a lot of paperwork). We do have a rental contract for the whole period, but I assume this wouldn't be enough and that HMRC would want proof that the rent was actually paid?

I was thinking of just putting down the months we have proof for as expenses and accepting that we don't have enough evidence for the other months...would that work?


The only person who can really give you an answer is an accountant.


 

James (Jim) Davis  Identity Verified
Seychelles
Local time: 11:28
Italian to English
hands free phone function? Dec 8, 2013

"can't face being put on hold for 30+ minute" Hi Claire. I put calls on hands free or just skype it with a headset and just carry on working until somebody answers. Obviously, you may be running up a phone bill, but it is probably easier than posting here and the advice may be better... (or may noticon_smile.gif ).

 

Charlie Bavington (X)  Identity Verified
Local time: 08:28
French to English
Sunday waffle spot Dec 8, 2013

I get the impression this happened while you were based in Spain and conducting business in Spain.
Should it not therefore be the rules of the Spanish tax authorities that are relevant to your question, not the rules applied by HMRC (about which I do have comments) even if you are now back in the UK?
Or was it just a short sojourn and you were deemed a UK resident for tax purposes throughout?
Just wondered, really, possibly not relevant and none of my business...icon_smile.gif

Well, I guess I could add the other comments anyway, in case anyone else finds them usefulicon_smile.gif

When it comes to HMRC, the general advice you've been given about adopting a reasonable proportion is the advice I was also given and used.

However, I would query a couple of the specific points made.

Irrelevant to your case, but for the benefit of any other readers who may read the comment and panic - mortgage interest IS allowable (pro-rated), it's the capital repayment portion that is not allowed (but there are CGT implications).

Meanwhile, if you have a business expense that you have genuinely and honestly incurred, then you should deduct it (and quite frankly, a business with no premises costs might look pretty odd). However, if you cannot prove those costs, e.g. with receipts, then you should be prepared for the costs to be challenged and, perhaps, not accepted. So, to slightly modify what Tom said, "you need to be able to *prove* to HMRC that what you say about your expenses is true. If you can't, then you should be prepared to forego them if challenged" (and potentially prosecuted if HMRC think you didn't actually incur them in the first place). You may decide that, ultimately, that means Tom's rule is the most prudent.

Now, while I might decide (and indeed have done in the past) that the potential hassle isn't worth it for the odd book or stationery item, where I've lost the receipt if I ever had it, I'm not sure I'd adopt that stance for rent/premises costs, which might be relatively large.

After all, when push comes to shove there IS a paper trail somewhere, assuming the whole arrangement was above board. Your (former) bank will have records of payments made, even for closed accounts. Duplicate statements are usually available, even if you do have to pay (I admit I have not ever tried to do so for a closed account, nor or any kind of account in Spain!). If your premises costs look unusual compared to the norm, you're more likely to get inspected, not less, thereby provoking the very situation you hoped to avoid.

With regard to the actual proportion, and given the rent included bills, I think all we can safely say is it should probably be less than half. Your rent was for one office, one bedroom, and some unknown fraction of the other rooms you were sharing. Whatever that fraction was, the office was less than half the rent and less than half the bills. And as has been said, if the office was used for anything else, slice some more off that fraction accordingly.


 

Tom in London
United Kingdom
Local time: 08:28
Member (2008)
Italian to English
Good points, Charlie.... Dec 8, 2013

but (..sigh..) as I was saying, the only person who can really give a credible answer, on which to place reliance, is an accountant - and as you suggest, is it really all going to be worth the enormous hassle that might ensue?

[Edited at 2013-12-08 16:05 GMT]


 

clairemcn
United Kingdom
Local time: 08:28
French to English
+ ...
TOPIC STARTER
Maybe not worth it Dec 9, 2013

Good point Katalin...the office was in fact a dedicated office and used for nothing else, but it'd probably be a small amount of money I'd get deducted in the end...

Another point is that I wasn't self-employed for the whole tax year - presumably I could only claim expenses starting from when I became self-employed and not the whole tax year, even though we rented the office room with the intention of using it for translation?

I was in Spain for a short time but remained tax resident in the UK, so there is nothing to worry about regarding Spanish tax.

Finally, for future reference, all of the rent we paid in Spain came out of my partner's account, as I did not have a Spanish bank account (we are not married, just cohabiting) - theoretically, would it still be OK to claim this as an expense? We're back in the UK now and he still pays all the rent from his account, then I pay him my portion every month via online banking. I'll definitely need to claim a portion of the rent when I do my tax return next year, so wondering how that works.

I know I probably should sort out an accountant in the future, but it really isn't worth it this time. As I only started translating very late into the 2012/13 tax year, we're talking tiny amounts (under £1000 in profit from my translation work) and paying an accountant would cancel out the small possible saving from claiming these expenses. It's probably better to let the expenses go this time and make sure I'm more organised next year.


 

Charlie Bavington (X)  Identity Verified
Local time: 08:28
French to English
In the light of new information....! Dec 9, 2013

clairemcn wrote:

Finally, for future reference, all of the rent we paid in Spain came out of my partner's account, as I did not have a Spanish bank account (we are not married, just cohabiting) - theoretically, would it still be OK to claim this as an expense?


Did you pay any money towards this rent (i.e. reimburse your partner)? If not, then I would say no, since you haven't incurred a business expense. If so, then potentially yes, but again, whether you bother probably depends to an extent to the sums involved (i.e. the tax saved) versus the cost of proving it if ever called upon to do so. With profit (do you mean "profit", since you're still at the stage of determining your costs....?) of around £1,000, I'm inclined to the supposition (always a risky businessicon_smile.gif ) that the tax savings are not likely to be that great, and it's probably not worth bothering, simply because it will not make an iota of difference (are you likely to reach the personal income tax threshold for 2012-13?).

[Edited at 2013-12-09 19:29 GMT]


 
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