Monday, 12 August 2013

Thursday, 8 August 2013

Use of Home as Office 2013/14 - including example

  As mentioned in the previous blog, the 2013/14 Revenue & Customs Brief has included a new set of optional rules designed to simplify various forms of expenses for sole traders and partnerships. The expenses claim that is being concentrated on in this blog is the expenses claimed when the office in the home is used as part of the business. The room in the house where work takes place must be wholly and exclusively used as an office or similar work environment.
 Previously, the method of calculating claims was by apportioning the actual expenditure of the house between the room where the office is based (for the business) and the remainder of the private home. This can still be used from the tax year 2013/14, but the new brief has designed an alternative flat rate for the running expenses so to simplify it for the small businesses. Fixed costs are not covered in the flat rate so must still be apportioned like the old method.
 The new flat rate suggests monthly amounts for the running costs of the office in the home based on the amount of hours worked from home in the month. These are:

Hours worked at home in the month
Flat rate per month
25 hours or more
51 hours or more
101 hours or more

Example (relevant from 2013/14 tax year)

 James works 20 hours a week from his home office, and only uses this office for business purposes. His home office is one of 10 rooms in the house which he owns as opposed to rents.
-        His annual council tax is £2500, house insurance is £800 and mortgage interest is £6000 for the whole home.
-        Working 20 hours a week, his monthly flat rate for running costs falls in the £18 a month bracket, meaning £216 for the year for variable costs.

Home Office Expenses
Fixed Costs for house

Mortgage interest
Council Tax
Total Fixed Costs

Fixed Costs for Office (1/10)
Flat rate (for Office)
Total Expenses for Home Office

The Fixed costs are apportioned to the office on the basis of the amount of rooms in the home. As there are 10 rooms in the property, 10% of the total fixed cost is given to the home office for the business. This method of apportioning is what would be used for running costs if the simplified expenses rules were ignored.

Friday, 2 August 2013

UK Government spending and receipts

Simplified Expenses for 2013/14

 Included in the 2013/14 Revenue & Customs Brief are a new set of optional rules designed to simplify the expenses for certain parts of a sole trade or unincorporated partnership. Their aim is to aid small businesses with more efficient methods to calculate their expenses. The types of businesses that can use the new rules are:

-        Businesses with vehicles – business mileage deductions have a new simplified alternative to apportioning the actual costs.
-        Adjustments to businesses such as a small hotel or B&B who live on the premises of the business.
-        Businesses which use part of their home as an office.

 Whether these new simplified rules are beneficial to your business can only be assessed on a case by case basis. The alternative method for calculating expenses may actually be more suitable to your company.

Business Mileage Deductions

 The new rules for 2013/14 business mileage deductions keep the same flat rates as previously:

-        £0.45 per mile for the first 10,000 miles.
-        £0.25 per mile for every mile after.

 The main difference is that they cover all running costs and capital allowances of the vehicle so there are no further costs. They also now have a statutory effect as opposed to previous years. It is aimed at smaller businesses with perhaps only one vehicle; however the flat rate must always be used for that vehicle.
 The flat rate doesn’t have to be used for all the vehicles in the business, the method of apportioning the actual costs between business and private use can also be applied. If capital allowances on that particular vehicle have already been claimed, the flat rate cannot be used.

Board & Lodging Adjustments

  This is for businesses that live on the site of their small hotel, guesthouse or B&B, it is only for such businesses which the main use is for their trade. The adjustments are a new simplified version of the agreements between HMRC and the business which were previously in place.
  The new rule calculates the portion of the running costs which are used in the private part of the home, and which can therefore be deducted off the total costs to find the total deductible business expenses. It is based on the number of people who reside in the private part of the premises (including children):

Number of people
Flat rate per month
The running cost includes all household goods and services, food and non-alcoholic drinks and utilities. It does not include fixed costs such as mortgage interest, property insurance or council tax.

 Transitional rules for businesses which used the previous boarding and lodging agreements with HMRC are as follows:

-        If had an agreement in place for 2012/13 then it can be used for the 2013/14 tax year, however from 2014/15 it can no longer be used and the flat rate or actual basis must be used. This is in place to give time for businesses to consider which method they would now like to employ.
-        No new agreements can be made from 2013/14 as they are being withdrawn.

Use of Home as Office

 The new rule again creates a flat rate on the basis of hours using the office in the home over the month, to deduct as expenses. It is a monthly flat rate which covers the running costs of the home office (heat, light, power, telephone, broadband) but it does not include the fixed costs (rent/mortgage interest, council tax, insurance), these need to be apportioned from the private costs of the home. The flat rate method acts as an alternative to apportioning the total cost of the home, and apportioning the business element.
 The Flat rate amounts are as follows:

Total hours using the office
Flat rate per month
25 hours +
51 hours +
101 hours +

The office must be wholly and exclusively used for business purposes in order for it to qualify.