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Where Taxpayers and Advisers Meet

Tax Enquiry " Home use as Office"

Tamarix
Posts: 9
Joined: Wed Aug 06, 2008 3:26 pm

Postby Tamarix » Sun Aug 28, 2005 2:43 pm

My daughter owns a Taxi and is self-employed. She is subject to an enquiry at the moment. Her "home as office" allowance was calculated in the usual way, by dividing the outgoings by the number of rooms, excepting kitchen and bathroom.
The Rent, Rates, water Rate, gas and electricity was added up for the seven months that the return applied to (she had only just started in business) and then divided by the 4 rooms in the house to arrive at a figure to claim. The IR have disregarded the Rent, Rates and Water Rates and only allowed the total of the gas and electricity divided by 4 rooms, which amounted to only £20.00 that they would allow! My question is, why do you suggest in your Tax doctor tips and other tax sites say the same, to take the RENT, COUNCIL TAX, WATER RATES and Insurances into consideration ? I notice there is no help whatsoever on the IR site and yet a taxi driver spends a lot of his time at home taking calls and bookings for taxis! Is it worth disputing this, and what grounds would be best used ?

Many thanks, if anyone can help or anyone has had a similar thing happen to them.

cranleys
Posts: 567
Joined: Wed Aug 06, 2008 3:13 pm
Location: Basingstoke
Contact:

Postby cranleys » Sun Aug 28, 2005 3:22 pm

Tamarix

I would certainly have grounds for fighting this case.

I had similar discussions with some tax inspectors and won the case. The fact that the work of a taxi driver is not office based should not be underconsideration.

Colin@cranleys.co.uk

Instinctive
Posts: 1797
Joined: Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Mon Aug 29, 2005 2:27 am

I don't see any reason why the council tax could be considered a business expense. This is purely a personal expense.

I would also say that ot is difficult to justify claim for water as the expense is not in proportion to rooms in the house nor is it likely to increase in amount just because you also carry on business from home.

The central theme in claiming business expense is that it should be incurred wholly and exclusively for the purpose of your business. In the case of shared expenses, you could only claim a proportion which is directly attributed to business use, ie, in the same way as motor expenses which is apportioned according to usage or mileage.

Neither council tax nor water rates are increased due to using home as business. Therefore, there is no additional cost incurred by you by using part of your home as a business.

Sorry I could not give you any encouragement. Sometimes it is better to face practicalities and work towards earlier settlement in your enquiry.

Ramnik

Tamarix
Posts: 9
Joined: Wed Aug 06, 2008 3:26 pm

Postby Tamarix » Mon Aug 29, 2005 3:05 am

Thank-you Colin and Ramnik for your deliberations. Can some-one still explain why in your Tax Doctor article of October 2002 from which the information was gleaned in the first place, why it states that RENT, COUNCIL TAX,WATER RATES, etc are the expenses that need to be taken into consideration when computating this figure for OT ? Can any one please clarify what expenses can be taken into consideration, or indeed HOW TO WORK OUT " Office Use of Home " computation, it seems to me to be a VERY, VERY grey area. Ever hopeful that some-one can help me, I feel that £20 allowed by IR is an insult, when I know that other business's of the same type as my own and the same office arrangements, are claiming £300 for their "Office use of Home"
Also WHY, does the Ir not make this at all clear in their information sheets, etc. as surely it is a problem that is incurring more and more, as more and more people operate their small business from home ? My gut feeling is to challenge the amount, but as Ramnik says, is it going to jeopardise the conclusion to the enquiry. PLEASE, PLEASE help me, the letter has to be answered a.s.a.p. or challenged.
Tamarix

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Mon Aug 29, 2005 4:06 am

Yes, this is a bit of a grey area.

Most of which stems from the status of the room(s).

Are they set aside *exclusively* for business use? If so, then,IMHO, Council Tax will be (part) allowable, but not Water Rates.

The problem with the "exlusive" definition, it could jeopardise the CGT exemption - not a problem for a rented property.

There is some (not much) info in HMRC's Business Income Manual at #46840.

Most Tax Inspectors don't bother challenging £5-£6 per week for "Use of Home As Office". However, it does seem to be the actual business - i.e. taxi driver - which may be limiting the claim. How much time does she spend in this room? I suspect a lot less than a desk based business?

A claim of £300 p.a. is only worth £66 (@22% Income Tax Rate)which you need to bear in mind when pursuing the issue. If an accountant is involved, it is even less likely to make financial sense to do so.

cranleys
Posts: 567
Joined: Wed Aug 06, 2008 3:13 pm
Location: Basingstoke
Contact:

Postby cranleys » Tue Aug 30, 2005 1:42 pm

Tamarix

You are using the premises in a proportion based on the rooms. If they are not exclusive there are no CGT issues.

The inspector has not won arguments which Cranleys have put forward on our taxi drivers and I believe perhaps this inspector is trying to claim it is not allowed. It certainly has not relevance to exclude some residential premises costs and not the other - we have even won cases where the inspector has put valuations forward from the district valuer based on minority holdings. To query the few would put virtually all returns into question and very few working from home are full-time at home so I do not agree with that position either.

Having any business ultimately results in some space some where being required for office duties and you only have to walk into a clients house to understand their needs and the requirement.

Always available to assist.

Colin Davison
colin.davison@cranleys.co.uk

Editor - Property Tax Secrets 2005

Cranleys Chartered Accountants

Always seek good professional support before making any decisions - individual specific advice is needed due to the complexity of individual circumstances.

Tamarix
Posts: 9
Joined: Wed Aug 06, 2008 3:26 pm

Postby Tamarix » Wed Aug 31, 2005 5:25 am

Colin

Thankyou for your further update, after deliberating on all the views given about my question, my gut feeling was to dispute what IR was saying. As they were wanting more info about another issue, we decided to challenge their proposal. Like you say, to query a few does put all returns into question ! I know, that a colleague taxi driver who also had an enquiry in 2003 and had to eventually resort to employing an accountant to take on his enquiry case, does get allowed £350 for his "Office use of Home " and again it is a rented home and the office space is not exclusively used for office duties. In fact his situation is identical to mine and yet when the two years 2002/2003 were sorted in his enquiry, the accountant put forward £350 per annum, and it has been accepted and used, each year! I, too think that they are trying it on, but am game for a challenge, anytime! So we,challenge. Will let everyone know the outcome, watch this space!!!
Tamarix

sacha01
Posts: 3
Joined: Wed Aug 06, 2008 3:28 pm

Postby sacha01 » Fri Sep 09, 2005 2:59 am

I also work from home and have also been frustrated by lack of information about what household expenses are allowable. On ringing the Inland Revenue (various helplines, etc) it is often the opinion of the adviser that is given and if you ask the same question of different advisers you get different answers. (Water rates is a good example of where I've found opinions differ.) This isn't really good enough; we need printed information from the Inland Revenue, not opinions, especially so as we face the prospect of our calculations being examined in an enquiry. I bemoaned this fact in a letter enclosed with last year's tax return and they sent me a very useful booklet "Your Guide to Starting in Business" (produced by the Business Support Team of the area office where I am taxed) which contained some useful pages about working from home. I wonder whether your own area Business Support Team produce such a booklet. In terms of council tax and water rates, the booklet states that the relevant proportion of council tax is allowed, but not water rates, unless water is used in the business.
As my water is metered I wrote in to ask whether the rule held true for metered water, as it seemed to me no different from gas or electricity which is metered and is allowed. The reply I received was that metered water is not allowed, but water billed as a standard charge (irrespective of how much is used) is allowed and that, as a result of my question, they are going to amend the information in the booklet. However,it may be that someone from another tax office would interpret the rules differently.
The whole area of working from home seems to me to be a minefield and I have spent hours trying to get definitive information. There is information out there, but I don't think the Inland Revenue make it very easy to find. For example, I would have liked to have received the above mentioned booklet when I first started the business. As it was, I only received it after complaining about lack of information.

Good luck.

PS I'm not sure if it would be wise to give out the details of which tax office produced the above mentioned booklet, so I am playing safe and haven't.

Tamarix
Posts: 9
Joined: Wed Aug 06, 2008 3:26 pm

Postby Tamarix » Fri Sep 09, 2005 3:55 am

Sacha01

Thankyou for your contribution to my question. Yes, it is obviously a very grey area and it seems to me that it happens to be "who you deal with" at the time ! It should NOT be like that, after all, us tax payers are soon asked the ins and outs of our private life when an enquiry is started and yet a lot of the anomalies created in our tax returns are through lack of guidance from the IR.I actually do enjoy the subject of TAX and have spent hours and hours reading all the jargon that is available,but think that NOT ENOUGH people question them, maybe it is only the experienced advisers and tax consultants who know the drill. So many of us cannot aford to pay out big fees for this consultation ! THAT IS WHY I AGAIN PRAISE THIS WEB-SITE for their absolutely geniune help and discussions about our problems. THEY ARE THE BEST.
THANYOU ALL !

Tamarix
Posts: 9
Joined: Wed Aug 06, 2008 3:26 pm

Postby Tamarix » Sat Oct 01, 2005 5:51 am

Colin and all who contributed !

Well, I did what I felt I had to do and challenged the I.R. I suggested that a claim of £5 - £6 was an amount that would normally be accepted for this use! Emphasised the point that you made, Colin, that to query a few would put all tax returns into question, and let them know that the space used for the Taxi business, is in fact used seven days a week and the telephone has no limitations as it rings 24/7 !

This reasoning was accepted and they set the allowance at £5 per week which is £260 per year, a lot better than the £20 they initially offered!
So, thanks again, for all your contributions, hope this may help others.

Tamarix


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