How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Sam Your Own Question
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13866
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
16196420
Type Your Tax Question Here...
Sam is online now

Hi Sam Further to our last correspondence... I am the director

Resolved Question:

Hi Sam
Further to our last correspondence...
I am the director and sole shareholder of a small limited company.
I have an office at home (I have a four bedroomed house, plus living room and dining room) and use two of these rooms for business use) and since I became a limited company, again in 2007, I have been offsetting two sixths of my utility bills, mortgage interest and council tax against the tax bill.
Should I be claiming as an employee or as the company?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi Katina

Thanks for your question and for asking for me.

Is your home address the registered office address for the limited company, or is this elsewhere and you work from home and are these two rooms used exclusively for business.

If they are used exclusively for business = then how much time do you actually spend on a average week utilising these rooms for business purposes.

I can then advise further.

Thanks

Sam


Customer: replied 3 years ago.

Hi Sam


No, the registered address is different. I use the two rooms predominantly for business. I think the accountant does some kind of adjustment on the tax return for when I come to sell the house.


 

Expert:  Sam replied 3 years ago.
Hi

Thanks for your response

Then HMRC are correct - you should be claiming the expenses through your personal tax return as this is an employee (director) expense and not a company expense.

I would also add the fact you are claiming council tax and mortgage interest is a bit risky - and whilst your accountant has made you aware that capital gains will arise when you come to sell the property (that's the kind of adjustment that the accountant will do when you sell the house) do you realise, this means that 2/6ths of any profit made on the sale will be subjected to a capital gain consideration. If this is less than £11,100 (this tax years annual exemption allowance) then no capital gains tax due, but I fear as we are not 7 years down the line, that this could well, already be in excess of that limit.
Plus if you are undertaking work at home, this can affect your mortgage and the building and contents insurance, so do make sure you are not in breach of any issues there.

Then council tax, as you are actively trading from home, you could find yourself at risk of actually be liable for business rates on 2/6ths of the property, so I never recommend my clients claim this, so just be aware, that you really should have alerted your local council to establish the business rate position.


And also I would have recommended that 2/6ths of the bills is way too high, as I doubt you work 24 hours a day/7 days a week so I would suggest a further adjustment is crucial, But to address the question again
1) this should not have been claimed through the limited company as not the registered office, but your own home from which you, as an employee, work out of
2) The claim (with the recommended adjustments should be claimed against your own salary (from the limited company) and claimed through your self assessment tax return.

Do feel free to ask any follow up questions

Thanks

Sam


Sam and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Hi Sam


Could I ask you to expand further on your point at the end: -


2) The claim (with the recommended adjustments should be claimed against your own salary (from the limited company) and claimed through your self assessment tax return.


 


Are you saying that the claim - ie a proportion of the bills - should be claimed against my salary?


 

Expert:  Sam replied 3 years ago.
Hi

Thanks for your response

Yes - sorry my grammar was appalling with that sentence !

So all income (which includes salary and dividends you draw out from the limited company) would be declared on your self assessment tax return - and the expenses for use of the home would be claimed on the employment page, along with the salary drawn from the limited company.(as any dividends are declared on the main part of the tax return)

Thanks

Sam
Customer: replied 3 years ago.

Thanks Sam


So the expenses for use of the home would be a proportion of the bills?


 

Expert:  Sam replied 3 years ago.
Hi

Thanks for your response

Yes, but I would suggest they should be far lower than the inflated ones that have been claimed by your accountant as they do not appear (and I may be wrong) to represent the true out of pocket expenses that you incur through working from home.
So whilst the claim may be 2/6ths (2 rooms use out of 6 habitable rooms) unless you spend 24/7 in there - then this is way too high, and it would be sensible to consider making a reduction to represent the hours not worked at home.

Also just for information, it has to be that your substantive duties are carried out at home - rather than just admin and incidental duties for this even to be a valid claim.

And I would also consider just claiming for heating and lighting - rather than council tax and mortgage interest too - but this is suggestion rather than an absolute - as long you remain ware of the business rates that should be charged, and the capital gain position on any future house sale, if you proceed with claiming these additional costs.

Plus you will need to adjust the corporation tax (and companies house) position to take out expenses previously claimed in error, but as the Inspector is conducting the enquiry - it may not so any harm to clarify, how he/she plans to take this forward, and what years he plans to amend (bearing in mind that for self assessment purposes you can only back 3 years to change a return that will result in a tax refund, so it would be useful to know the reduction of claim on the corporation tax, at least can be balanced out with a valid claim on self assessment)

Thanks

Sam

Thanks

Sam
Customer: replied 3 years ago.

Thanks very much Sam

Expert:  Sam replied 3 years ago.
HI Katina

You are very welcome, and if you need any further tax assistance, then please do come back to Just Answer, and you can always ask for me, if you would prefer - then the other experts will know to leave the question for me - I'm online every day (in between client meetings and telephone calls)

Thanks and good luck


Sam

Related Tax Questions