# Setting up office at home



## LillyLillyLi (7 Feb 2008)

Hi there. Am setting up my own company to facilitate IT contracting. I need a premises for my company and I own a one bed apartment and live there by myself. I would like to make the bedroom my office and my living space like a "bedsit" apartment. Would someone know if this is above board with the revenue? 

I guess I will need to rent the bedroom to my company then. Is this legitimate?

Thanks for any comments / help.

Lilly


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## paddi22 (7 Feb 2008)

Would that not be more hassle then it's worth? You would have to declare you're rental as an income as well wouldn't you? and pay the tax on that income.  I work from home and purely deduct the percentage cost of my electricity, phones etc.


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## ButtermilkJa (7 Feb 2008)

If you charge your company rent then you may also be liable for CGT on the sale of your apt as well as IT on the rental income. I am in the same position as you and I just claim a percentage of elec and gas as mentioned by paddi.


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## LillyLillyLi (8 Feb 2008)

Hmm.. yeh maybe you are right. I was thinking that because the rent wouldn't be in excess of the interest that I wouldnt have to worry about paying any income tax on that....

It would save me about 5K.. but I hadn't thought about CGT.maybe its not worth it.

Thanks a million for your replies.

Lilly.


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## ubiquitous (8 Feb 2008)

LillyLillyLi said:


> .maybe its not worth it.


It most certainly isn't worth it. If you rent your bedroom to your company, and you sleep there at night, are you paying the company for this? If not you will incur a BIK tax charge.


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## teachai (8 Feb 2008)

You can generally charge up to 30% of your household expenses for your business. However, usually you're supposed to have a dedicated room for your office.  However, as you only have a 1 bedroom apt I would seek advice from an accountant. Getting an accountant is definitely worth the expense.


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## theoneill (8 Feb 2008)

Just wondering if you do set up an office / business from home are you not leaving yourself open to commercial rates payable to your local authority?

I seem to remember an article stating that councils were cracking down on people using their home as a place of work.


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## pahadia (8 Feb 2008)

teachai said:


> You can generally charge up to 30% of your household expenses for your business. However, usually you're supposed to have a dedicated room for your office. However, as you only have a 1 bedroom apt I would seek advice from an accountant. Getting an accountant is definitely worth the expense.


 
Suppose you have 3 bed house and have 1 bedroom dedicate to office. Can you charge portion of mortgage as expense. If yes what portion/percentage? 

What was car milage rate for 2007 ?


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## ClubMan (8 Feb 2008)

Anybody considering doing this really needs to get professional advice. As mentioned above in many (most?) cases it will probably not be worth the hassle doing what's proposed in the original post.


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## teachai (8 Feb 2008)

pahadia said:


> Suppose you have 3 bed house and have 1 bedroom dedicate to office. Can you charge portion of mortgage as expense. If yes what portion/percentage?
> 
> What was car milage rate for 2007 ?



Its usually about 30% (could be up to 1/3).   I did this when IT contracting. You can claim the mileage based on the  high grade (Director) civil service rate.   This can be very attractive.  Check the gov sites for civil service mileage allowances.

If you need to use public transport, you can get your company to pay for it, 
You need to get at least a monthly pass, which comes tax free. So, your business is paying for it, not you.  

All in all, its best to get an accountant, who is best placed to advise you, but at the end of the day, its ultimately your decision.


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## gallon (28 Feb 2008)

I have a similar question am moving house soon so will be moving office. I am thinking of getting a mini network installed (needless to say the network might just happen to include a few rooms .) and one room upgraded electrically, basically to save the hassle of having wires everywhere in my office. 

Can I expense this work to the company and if so what are the downsides? Has anyone done this? 

Also on renting the office to the company, I was advised by my accountant that yes if you go and sell the house later the taxman will look for CGT. So as stated above just take % of the household bills, phone, electrcity and heating. However things business realted can be 100% like internet etc.


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## ubiquitous (28 Feb 2008)

gallon said:


> I am thinking of getting a mini network installed (needless to say the network might just happen to include a few rooms
> ...
> However things business realted can be 100% like internet etc.


Are you contradicting yourself here? Remember, the taxman can also take a   approach if it suits him.


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## gallon (28 Feb 2008)

True he could but honestly I  can't see him wandering through checking my house to see the various network connections. Also the receipt is not going to say installed network point in bedroom, kitchen etc. However anyway that is the risk one takes, 

On the 100% aspect, I was talking general service charges. Anyway who is to say that the network points outside the office are not business related?


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## ubiquitous (28 Feb 2008)

gallon said:


> True he could but honestly I  can't see him wandering through checking my house to see the various network connections. Also the receipt is not going to say installed network point in bedroom, kitchen etc. However anyway that is the risk one takes,
> 
> On the 100% aspect, I was talking general service charges. Anyway who is to say that the network points outside the office are not business related?



Under the self-assessment tax system, the burden of proof is on the taxpayer to demonstrate any particular expenditure item is tax-deductible. The Revenue can disallow any item without having to prove anything, and can raise assessments for interest, penalties etc on this basis.


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## gallon (28 Feb 2008)

Ok good point. However in the case of a small home office how does one "demonstrate any particular expenditure item is tax-deductible" for anything. As to be honest the majority of stuff while primarily used for a business purpose may also be used for domestic purpose? e.g. printer, paper etc.

I guess this goes back to my original question would an upgrade of office facilities be deemed tax-deductable? I can definitely make a case for necessity as I currently have the situation with network cables running all over the place, which is not good especially in home office or for my wife. 

Now an additional question comes to light as I had this situation before
I have had items where I paid vat (items bought in the UK) but could not claim it back but it still it was a company expense so the company paid for those. 

Honestly I am not trying to appear smart i just want to know where are the edges of grey.


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## ubiquitous (28 Feb 2008)

gallon said:


> Honestly I am not trying to appear smart i just want to know where are the edges of grey.



You will really only establish this by obtaining specific professional advice based on your own circumstances. The subject is much too complex to discuss meaningfully here anything other than in terms of broad principles. How these principles should be applied in practice will vary according to the facts of each case. 

As an accountant myself, I normally advise my clients to be very very careful if they want to claim domestic utility and other expenses as company overheads, because in most situations the value of the potential tax saving is small (especially when companies pay Corporation Tax at just 12.5%) and the risks of hassle & dispute in the event of a Revenue audit are high. 

There's a lot to be said for keeping things simple if you can.


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## gallon (29 Feb 2008)

Ok, so basically if you do claim any section of domestic utility/expenses insure you can justify their presence. I'm going to check with my accountant he has a home office too, so hopefully should have given my circumstance what is feasible or not.

Ubiquitous, thanks for the advice


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