Heat and Light - form 11

[Kagy]

Hi all,
Just wondering the correct way to adjust for heat and light on the F11, (I fill it out myself as I have a very low turnover (<6k))

Do I assign the full bills for ESB and phone in the "other expenses" and then adjust for the personal usage in the adjustment section, or do I simply add the business usage part to the adjustment section.

Karl

 

[Pat Bateman]

Personally I wouldn't claim any business expenses at home.

What you gain in reducing your taxable profit should more than likely not compensate for the partial loss of PPR relief when you dispose of the property and have to pay CGT.

I assuming that's what's happening here.

 

[Kagy]

I don't think that that will be a problem as no part of the house is used exclusively for business purposes. I.e. the whole house is used as a residence.

Either way, I'd be interested to know if the adjustment adds or subtracts from the profit.

 

[Pat Bateman]

I'd simply include the net figures in the "other expenses" section.

I'm still unclear as to whether you're running a business from your home or not. It's slightly unclear from your posts so apologies if I'm going up a blind alley here.

If, for example, you're including a portion of your domestic ESB bill as a trading expense in your income tax return, Revenue may query any claim for 100% PPR relief if/when you dispose of your residence.

Let's take the example of someone who runs a business from their home and allocates 10% of their annual ESB bill as a trading expense (this might be €180 in a normal household). Let's say they purchased the property for €200,000 and sell the property at a later date for €300,000. Let's also assume that they own the property for 5 years and that they also take a trading deduction for ESB for each of those years. Normally, PPR relief would apply and no CGT would arise on the disposal of the property. However, in the above case it's likely that Revenue would look for CGT of approximately €2,500 (i.e. 25% of 10% of the gain on disposal of the property).

In other words, by saving themselves approximately €450 in tax (i.e. 50% of €900), the owner has cost themselves approximately €2,500. It's case of considering the big picture vs the small picture really.

I would be extremely wary of claiming trading deductions for expenses incurred in my home. PPR relief is an extremely valuable relief so any action which might jeopardise it should be given careful consideration.

 

[Kagy]

thanks for the advice, I thought that that would only be a problem if there was part of the house dedicated to the business, like an office or out-building.
I'll keep it in mind, although in the only situations that I can envisage selling the house there would be a lot more to worry about than cgt. (Or i'd have just won the lotto!)

 

[T McGibney]

thanks for the advice, I thought that that would only be a problem if there was part of the house dedicated to the business, like an office or out-building.

You thought correctly. PPR status is only compromised when a property or part of a property is used exclusively for business use for a period. It is easy to avoid this possiblity once you organise your activities to ensure that no part of the property is used exclusively for business.

 

[Graham_07]

You thought correctly. PPR status is only compromised when a property or part of a property is used exclusively for business use for a period. It is easy to avoid this possiblity once you organise your activities to ensure that no part of the property is used exclusively for business.

This is very interesting. So if I leave my iPod dock in the home office and listen to music there and read the latest John Grisham a few nights a week then it's not exclusively used for business is it? In this manner I can, legitimately avoid any possible CGT issue on any future disposal of the PPR.

 

[ninak]

I am interested in this too. I claim expenses of a sixth of my household bills such as heat, light, etc as I work from home. I thought that as long as I am not claiming expenses for the mortgage or charging a rent to the business for the space that it would not effect CGT if I sell the property. Am I totally wrong on that?

 

[circle]

You thought correctly. PPR status is only compromised when a property or part of a property is used exclusively for business use for a period. It is easy to avoid this possiblity once you organise your activities to ensure that no part of the property is used exclusively for business.

And it's only a deductable business expense if it's wholly and exclusively for business use. In fairness, we can't have it both ways!

 

[T McGibney]

This is very interesting. So if I leave my iPod dock in the home office and listen to music there and read the latest John Grisham a few nights a week then it's not exclusively used for business is it? In this manner I can, legitimately avoid any possible CGT issue on any future disposal of the PPR.

Theoretically yes, presuming of course that personal use element is deemed to be genuine and not an artificial tax avoidance measure.

 

[T McGibney]

And it's only a deductable business expense if it's wholly and exclusively for business use. In fairness, we can't have it both ways!

I think you're misinterpreting "wholly and exclusively for business use". The tax system does allow expenses to be apportioned between deductible business use %s and non-deductible private use %s. The deductible element must of course be "wholly and exclusively for business use."

 

[contemporary]

I wonder if you can claim the eworkers allowance of 3.20 per day

[broken link removed]

 

[Pat Bateman]

I am interested in this too. I claim expenses of a sixth of my household bills such as heat, light, etc as I work from home. I thought that as long as I am not claiming expenses for the mortgage or charging a rent to the business for the space that it would not effect CGT if I sell the property. Am I totally wrong on that?

Yes, you're totally wrong.

On the basis of the above, 1/6 of your home is not eligible for PPR relief (i.e. CGT should arise) in respect of the period you've claimed these expenses for.