• Nathan Thompson

Home is where the... Tax Relief is?

This week its a bit of a short one, I could go into more detail, but to be honest at that point it really depends on the individual, and professional advice should be sought, so i'm just going to give a brief idea of how it works. (The original article I read was about 2 and a half pages long and was written for tax professionals so that is how complicated it can get!)


I read an article in one of the many tax journals I get (Alas I have misplaced the article and unable to credit the author for the inspiration to write this blog, if i find it i will update and credit him properly!),in brief, it was about if a Director can claim the cost of building an extension for a home business, the author was asked a "quick question" about it....

The short answer is no. not unless you want to pay tax (and i'm yet to find a client who does!!)

A slightly longer answer is no, not an extension, but you can put one of those office pod things in the garden, the exact costs you can claim depend though and if you're looking at this, get a quote with detailed breakdown.

HOWEVER: you cannot claim these costs against Corporation tax or Income tax. They come under the capital allowances rules. These are fairly complex (biggest understatement since David Cameron said what could possibly go wrong with a referendum), for example what counts as structure, and what are integral features and what is plant and machinery? (for the enthusiastic, check out the Capital Allowances Act 2001 sections 21-23)

What about on going costs though, rent, heating, that kind of thing. The answer here is a very loud YES! (Woop!)

DISCLAIMER: I wouldn't be an accountant if i didn't add... "It Depends" to the above answer.

What can you claim then?

METHOD 1: use HMRC's allowance.

This one means you can claim £4 per week for all your business use, no need to keep records either.

If you are self-employed you can claim up to £26 per month

I don't know about you, but that doesn't cover half of what I'm paying!

METHOD 2: actual costs

This one takes a bit longer and is definitely worth doing if you are renting. What you do is fairly simple although it involves a bit of Maths.

You take the actual costs you incur, electricity, gas, rent, etc and apportion them over the amount that is used for business. for example:

If your monthly costs are as follows:

Rent: £800

Electricity & gas: £80

Broadband: £25

Total monthly cost: £905

You have a 3 bedroom house with a dining room and living room. One room is used solely for business: you can claim 1/5 of the costs: £181 per month.

As a basic rate tax payer, you're looking at roughly a £400 saving on your tax bill here.

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