HMRC internal manual

Business Income Manual

BIM47815 - Specific deductions: use of home: apportioning the expenditure

S34 Income Tax (Trading and Other Income) Act 2005

This page and the examples at BIM47825 explain how to apportion expenditure where a self-employed person’s home is used partly for trade and partly for other purposes.

If you need more detailed guidance on when you can apportion expenditure to arrive at the allowable trade expense, this can be found at BIM37600 onwards.

The courts have approved apportioning household expenses. Templeman J in Caillebotte v Quinn [1975] 50TC222 at page 227F-G said:

‘… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure.’

In arriving at the proportion of allowable expenses, you need to establish the underlying facts.

In many cases there is more than one method of arriving at a reasonable apportionment and this guidance is not intended to be prescriptive. The results may differ in detail, but they are equally acceptable. This does not apply in all cases. Some methods may be more appropriate for a particular type of expense. For instance apportionment by area may be adequately considered by reference to the number of rooms in use, alternatively in an open plan environment a calculation by reference to floor area may be necessary to isolate the identifiable area used solely for the purposes of the trade. If two different methods produce substantially different figures, then that is likely to be a sign that one may more closely reflect the underlying facts and that the other method is flawed.

If there is only minor trade use of the home you may accept a reasonable estimate consistent with the underlying facts.

The extent of trade use is a question of fact. Enquiries are only likely to be worthwhile where the amount claimed is significant and appears to be inconsistent with the nature of the taxpayer’s trade.

Different traders organise their businesses in different ways. There is no fixed proportion of costs allowable in a particular type of business, although the same type of trade conducted in the same way may be expected to result in similar deductible amounts.

The factors to be taken into account when apportioning an expense include:

  • Area: what proportion in terms of area of the home is used for trade purposes?
  • Usage: how much is consumed? This is appropriate where there is a metered or measurable supply such as electricity, gas or water.
  • Time: how long is it used for trade purposes, as compared to any other use?

The method of apportioning an expense depends on the relative importance of each of these factors. There are examples at BIM47825.

From April 2013, the new simplified expenses rules mean that unincorporated businesses can choose to calculate the trade proportion of household expenses using flat rate allowances (see BIM75010).