Many small businesses are run from home and a proportion of the costs associated with running and maintaining a home can be deducted in computing the profits of the business.
The fixed costs associated with a home are incurred regardless of whether there is any business use of the property. These include rent, mortgage interest, insurance, council tax and general repairs.
Where a part of the house is set aside specifically for business use, a proportion of the fixed costs can be deducted in computing business profits. The apportionment should be made on a just and reasonable basis, such as by reference to floor area or the number of rooms.
However, where part of the home is used exclusively for business use, that part will not benefit from the capital gains tax main residence exemption if the property is sold and any gain apportioned to the business part will be taxable. However, in practice this is rarely a problem as any taxable gain on the business part is usually covered by the capital gains tax annual exemption.
Evie runs a small business from home. She uses one room exclusively for the purposes of her business. Her home has ten rooms.
For the year in question she pays home insurance of £300, rent of £12,000 and council tax of £1,500; a total of £13,800. She claims a deduction of 10%, i.e. £1,380, in computing her business profits.