BIM47825 - Specific deductions: use of home: examples

If there is only minor use, for example writing up the trade records at home, you may accept a reasonable estimate without detailed enquiry.

The following examples are a guide only and intended to demonstrate the principles to be applied. The examples are not intended to be prescriptive; each case will be dependent on the facts.

The examples set out what expenses are allowable when an individual carrying on a trade uses part of their home for trade purposes. The guidance does not apply to the use of home by an employee or director - for this see EIM32760 onwards.

Example 1

Angela writes up her trade records at home. She uses a room solely for trade use for a short period each week. She estimates that £104 covers the cost of the proportion of the establishment costs, plus the electricity for heating and lighting.

Although the claim for £104 is obviously an estimate of £2 per week, the claim is small and reflects the facts of the case. It is a reasonable estimate of the expense incurred. No enquiries are necessary.

Example 2

Bill runs a small business. He uses one small room at home as an office, exclusively for the purposes of his trade. The room represents 5% of the floor area of the house.

His Council Tax, insurance and mortgage interest bills total £4500. He claims 5%, £225.

His electricity bill for heating & lighting is £300. He claims £15, which is 5% of the total.

His total claim is £240 (plus the business proportion of his phone bill).

Although Bill has apportioned his electricity bill by floor area rather than usage, the amount claimed is small and there is nothing to suggest that his business use is significantly greater or lesser than his private use. It can be accepted as a reasonable estimate.

Example 3

Bert runs a small business. He uses the spare bedroom at home as his office except for a week at Easter and a week at Christmas. All he does is to write up his records, once a week.

The house has 10 rooms. Bert calculates that his trade expense, based on 1/10 of the total costs would be £450. Bert recognises that this is far too much for what he actually does at home.

Bert estimates that £104 covers the cost of the proportion of the establishment costs, plus the electricity for heating and lighting.

Although the claim for £104 is obviously an estimate of £2 per week, the claim is small and reflects the facts of the case. It is a reasonable estimate of the expense incurred. No enquiries are necessary.

Example 4

Chris is an author working from home. She uses her living room for four hours from 8am to 12pm. During the evening, from 6pm until 10pm it is used by her family. The room used represents 10% of the area of the house.

The fixed costs including cleaning, insurance, Council Tax and mortgage interest, etc total £6600. A tenth of the fixed establishment costs is £660. For the purposes of fixed costs, one sixth (4/24) of the use by time is for business, so Chris claims £110.

She uses electricity for heating, lighting and to power her computer, which costs £1500 per annum. Chris considers an apportionment of these costs by time and area. A tenth of the costs are £150 and half of these costs by time (4/8) relate to business use, she claims £75.

Her itemised telephone bill shows that a third of the calls made are business calls. She can claim the cost of those calls plus a third of the standing charge.

She has a broadband internet connection which she uses for research purposes as well as for private use. Two thirds of the time spent online is for business purposes, so that two thirds of the monthly charge is allowable.

Example 5

The facts are as in example 4.

Chris has some work done on the house. She has the exterior painted and at the same time has the dining room re-decorated.

What, if anything, can she claim as a deduction?

The exterior painting is a general household cost. She can claim a proportion based on business use.

Chris does not use her dining room for business purposes. The cost of redecorating the dining room is not an allowable expense.

Example 6

Gordon, an architect, dedicates a room solely for use as his office between 9am and 5pm daily. The room contains a workstation, office furniture and storage for his drawings. He uses the room for an average of 4 hours each day, though often this is spread over his working 8 hour day as he has a number of regular site visits to make. In addition it is not uncommon for Gordon to accommodate clients in his office to discuss plans, outside of normal hours.

The room is available for domestic use outside of business hours and his family regularly make use of the room for around 2 hours each evening.

After apportioning costs by reference to the number of rooms in the house, Gordon calculates the room uses £300 of variable costs (electric and oil) and £600 of fixed costs (council tax, mortgage interest, insurance). In apportioning these costs by time Gordon claims £680 in total, made up of 4/6 of variable costs (£200) and 8/10 of fixed costs (£480).

The claim equates to 75% of the total costs attributable to the room (£680/£900), which Gordon views as a more straightforward but equally reasonable basis for future claims, should his circumstances remain unchanged.

Example 7

Bill entertains a number of customers at his home. Each time he hires caterers and also a firm of cleaners.

Although Bill has used his home for trade purposes, he cannot claim any of the costs as there is legislation that disallows entertaining costs - see BIM45000 onwards.