Garden Office and other issues

[funkeii]

Hi guys,

1. My partner is registered self employed and is a sole trader, she is VAT registered and has been in business for 10 months.

I am currently unemployed and because my partner works less than 16 hours per week, we have been receiving job seekers allowance, as a joint claim.

We are seeking advice as the plan is to involve me in the running of the business. We wish to expand and work more than 16 hours a week, hence job seekers allowance would also be stopped. Therefore the question is does shes employ me, make me a partner ( we have been together for 9 years and trust each other!) or do I register self employed? What tax implications would arise?

2. My partner has been renting an office space to conduct the business from, but as she (and I) would like to expand the business we are thinking of doing the following and would be grateful of some advice around tax implications:

We would like to have a garden office built on our property and use this as our office. We are unsure yet if we want the space to be exclusively for business use, or if we want part of it for personal use. What are the tax implications of this? The issues we are unsure of are:

* CGT - if we sell the property are we liable? What about Private Residence Relief? What about an Annual Excemption Allowance (£10,100 2010/11)?

* Income Tax - if we used it exclusively for business then would we be better off re: income tax? If we use it for business and domestic use, how is the costs proportioned?

* Are there any other tax issues?

* What about running costs, how would we differentiate electric costs? Installing another telephone lineas we would probably install another landline so our home phone number is different to the office one - what are the implications of doing this? ( I appreciate some of these thoughts may not be applicable to taxation web!)

Any advice would be much appreciated by two young upstarts trying to learn as we go! lol

Thanks,

Kath

[Tax Champion]

There are lots of questions here!

Firstly, if you go into partnership you are both self-employed, with all the associated costs in terms of national insurance and tax - although if income is expected to be low for the first few years you may be able to claim exception from Naitonal Insurance. For a partnership, the profit after expenses is simply split between the partners(not necessarily in equal shares) for tax purposes.

Turning to the garden office - the costs of building this would almost certainly be capital, so not allowable for tax purposes even if it were to be used entirely for business. You would however be able to claim all the "revenue" costs, repairs, maintenance, heat & light etc. If it was used partly for business, partly private, you would be able to claim a reasonable proprtion of the costs, calculated on a time basis -ie how much time is it used for business, how much is private? If power is provided via the normal domestic meter rather than a separate supply, you would again have to work out a reasonable proportion based on usage and area; the same would apply to telephone calls.

As regards Capital Gains, this could potentially be a problem if it is used entirely for business, although the annual exemption would be available, and if it is jointly owned any gain would be split between you. Realistically there is unlikely to be a CGT liability unless you own it for a long time and property prices soar. If it is used only partly for business, the Private Residence Exemption will probably cover any gain.

If you would like further advice please get in touch.

[Kitty Kat]

If a room in your house is used as an office, but you maintain some sort of private use (a bookcase, guitar etc...) you can claim almost all your revenue expenses but your PPR still covers the whole property, so no CGT on sale of the house.

If that works for buildings in the garden though I can't say... Seems logical that it would, but tax is a crazy thing.