Specific deductions: use of home: specific expenses
S34 Income Tax (Trading and Other Income) Act 2005
This page looks at some of the types of expenditure that may be allowable. It should not be seen as an exhaustive list. What is allowable depends on the facts in each case. Alternatively a flat rate amount may be claimed for 2013-14 and later years under the simplified expenses rules see BIM75001 and BIM75010.
Use of home expenses broadly fall into two categories, fixed costs and running costs.
Some costs relate to the whole house and have to be paid even if there is no trade use. These include costs such as Council Tax (domestic rates in Northern Ireland), mortgage interest, insurance, water rates, general repairs and rent.
If part of the home is set aside solely for trade use for a specific period then a part of these costs is allowable. It will normally be appropriate to apportion these expenses by area and time. Some particular points are considered below.
If the trade use is covered by a separate policy then the cost of that policy is allowed in full, with no part of the household policy being allowed.
Otherwise, an appropriate part of the premium can be allowed.
Council Tax (Domestic Rates in Northern Ireland)
The Council Tax (Domestic rates) is a tax on property. In principle it may be allowable in those instances where other property-based expenses are deductible. If trade use is established the appropriate proportion of the tax may be allowed under the normal rules for the deduction of expenses. More detailed guidance can be found at BIM46840.
If part of the home is used solely for the trade then an appropriate part of the mortgage interest is an allowable deduction. Repayments of capital are not allowable. More detailed guidance on interest payments can be found at BIM45650 onwards. If profit is computed using cash basis, the maximum that can be claimed for interest and costs of obtaining finance is £500. See BIM70040.
Part of the rent is an allowable expense when the home is rented and part is used solely for trade purposes.
A sole trader cannot charge a separate rent to his or her own trade. This is because individuals cannot rent property to themselves. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for trade purposes. Where a partner charges rent for the use of their home by a partnership of which they are a member, see BIM38110.
Repairs and maintenance
A proportion of the cost of general household repairs and maintenance is allowable in line with the proportion that the house is used solely for the trade. Examples include the general redecoration of the exterior or repairs to the roof.
Repairs that relate solely to part of the house that is not used for the trade, such as decorating a room not used for the trade, are not allowable. Equally if a room is used solely for trade purposes then the cost of redecorating that room is wholly allowable.
For more information on what is a repair, see BIM46900 onwards.
There are some expenses where the total bill may vary with the amount of trade use. They include cleaning, heat and light and metered water.
If the claim is small and there is only minor trade use of the home, for example the taxpayer writes up their trade records at home, you may accept a claim based on any reasonable basis.
Where there is significant trade use it is appropriate to apportion such expenses by reference to the facts of that usage.
The facts may result in a higher proportion of costs attributable to either trade or domestic use.
For example, a cleaner may clean the living rooms but be under strict instructions to leave the office alone. In this situation, the payments to the cleaner are not an allowable expense.
Heat, light and power
A proportion of the heating and lighting costs of a room used at times solely for trade purposes is allowable. The proportion should reflect the facts of usage. Where usage is minor, such as the occasional writing up of records, you may accept any reasonable estimate consistent with such minor use.
You should take into account the number and nature of any power consuming items involved. A commercial photographer working from home using specialist studio lighting will have a much higher trade expense for electricity than a trader writing up records once a week in the spare bedroom.
Metered water charges
In cases of heavy usage the trade part of the property may be separately charged (and so fully allowable) in which event none of the domestic cost is deductible.
In the case of minor trade use of the premises, such as writing up records, there is no trade use of water and so none of the water charge is allowable.
Working from home: Telephone and broadband
Telephone and broadband costs do not relate to the home itself and are not household expenses. The following information applies whether use of home expenses are based on actual costs or the flat rate amount.
The cost of business calls is allowable. Also allow a proportion of the line rental (based on the ratio of trade use to total use). This proportion should reflect all aspects of use, including incoming calls, though in most cases reference to itemised outgoing calls will provide a reasonable and acceptable measure.
Care should be taken and a flexible approach adopted when considering the level of apportioned trade expenditure, relating to all inclusive packages offered by telephone and broadband providers.
Expenditure on an internet connection (including broadband and wireless broadband) is allowable to the extent that the connection is used for trade purposes. Where there is ‘mixed’ (trade/non-trade) use, follow the approach used for telephone rentals.
Private use not significant
Where private use is not significant, the full cost of telephone and broadband service can be claimed as a business expense. This simplification is not a part of the simplified expenses legislation introduced for 2013-14 and later tax years, see BIM75001.