July 28th, 2011
If you work at or from home, the part of the property used for work may be liable for business rates.
If the Valuation Office Agency (VOA) has given a rateable value to a part of your home then you will have to pay business rates on that part.
The remainder of the property will still be liable for council tax.
How is the assessment made?
There are a number of factors that the VOA will consider when they are deciding whether or not the part of your property used for work is liable for business rates. These include:
- the extent and frequency that the room (or rooms) is used for work
- if any modifications have been made to the building to accommodate work use
Each case is considered on its own merits, and the VOA will normally ask to visit your property to check the facts before an assessment is made.
Your local authority will use the rateable value to calculate the business rates bill and send it out annually.
There are several rate relief schemes available which may reduce your bill. Your local authority will administer these.
What is a composite property?
The Valuation Office Agency use the term ‘composite’, or ‘comp’, to indicate whether a property is mixed use. This means it contains both domestic and business/non-domestic areas, and these areas are used by the same occupiers.
Examples of composite properties include:
- a guest house with living accommodation for the owner
- a hotel with staff quarters
- a house that contains an area used exclusively for working from home
The domestic area of a composite property will be liable for council tax. The business or non-domestic area will be liable for business rates. You will not pay both taxes on the same part of the property.
Use of home as an office
Many small businesses use their home as the principle place of business. Where part of the house is used solely for business purposes there is a genuine risk that Business Rates will apply.
A balance needs to be made between maximizing the claim for tax relief for use of home as office and the extra cost of business rates compared with domestic council tax.
Generally those small businesses that merely set aside part of a room or use a study as a workplace, but also use the same room for domestic purposes are not especially at risk.
However where a person builds a loft or garage conversion, or builds a “summer house” in the garden for business use should consider themselves likely to be caught out as a composite property.
July 28th, 2011
Use of home as an office
Many people find themselves working from home, either as an employee dividing their working life between their employer’s office and working from home or the self employed using their home as the principle place of business.
In either case working at home ultimately increases some of the household costs and it’s not unreasonable to consider that the increase is largely the result of the employment or the business.
HMRC recognize the legitimacy of making such a claim and provided that you have set aside a fixed area in the house for work based activities then you will be able to claim a tax deduction to reflect these additional costs.
You do not need to dedicate an entire room for business, but there ought to be at least some fixed area within one room that is set aside for business or work based activities.
There is a general principle that tax deductible expenses should only occur because of the business itself, the term wholly and exclusively for the purpose of the business is often quoted, but in practice this is often very difficult when looking at household expenditure.
HM Revenue and Customs also recognize this difficulty and have introduced a flat £3 per week (£156 per annum) that can be claimed; this is often a practical solution to apply in a majority of cases.
But, if you are running a business and your home in the principle place of business, then the additional costs can be much higher.
For example you may have set aside an entire room as an office, even built a room in the loft or use the garage to store materials.
HMRC don’t offer a higher flat rate to reflect these circumstances but do permit a more specific calculation based on the proportion of the home used for business purposes.
The calculation is not difficult but can be time consuming.
The starting point is to add up the variable costs incurred in the year, this would include gas, electricity, heating oil, mortgage interest or rent, council tax and buildings insurance.
If you identify any costs that are specifically business they should be claimed in full and therefore excluded from the calculation, as should any costs that are specifically domestic.
It is worth explaining that some costs are of a capital nature and you must be careful when trying to include capital costs such as loft conversions, building an office extension or converting the garage in the claim for tax relief.
Remember that normally any gain in the value of your main home is tax free; and you may jeopardize that exemption if you start including capital costs. You may also create a taxable benefit in kind if your employer (or own company) pays for the capital cost.
One other factor you may wish to consider – your local authority may consider your property partly as business premises where large areas are specifically set aside and assess the property partially to business rates – note that business rates are much higher than council tax!
Once you have established the costs to be included the next stage is to calculate the proportion of the house that is used for business purposes. The most obvious way to do this is calculate the total floor area and divide that by the floor area used by the business to establish a proportion for business use.
Once you have calculated the proportion it only needs to be reassessed when circumstances change.
Apply the proportion to the variable costs established above and add any specific business costs to determine the Use of Home.