I am currently in the process of setting up on my own as a bookkeeper. Having done a number of AAT/ICB exams I thought I was ready but only now am I realising how little I actually know!
My potential client works from home doing aromatherapy and massage. As she has a room committed to the business I know that she will be able to claim a percentage of her utility bills - including her landline / mobile phone. She estimates that about 40% of her phone usage is for her business so I thought she could claim this amount of her bill. When I spoke to the HMRC about this to ask if she could claim 40% of her phone bills, they advised that I need to get the itemised phone bill and go through it with her to calculate exactly what calls/texts are business related. As she has a free messages & minutes contract (as many of us do!), unless she has incurred any extra costs as a result of the business, she can't claim any telephone (or internet I assume?) expenses. Is this how other bookkeepers do it?
In addition to my confusion over the phone bill, as she has eight rooms in her house, I was advised on Wednesday that she could claim an eighth of her utility bills as she has a room just for her business. Then, when I called today and spoke to someone else, they told me that I need to calculate how many hours she has spent working each week in her room, then divide that by 168 and multiply it by the eighth.
IE. If her electricity bill for October was £50.00 (so an eighth would be £6.25), and her room was in use for 30 hours - 7.5/week, she could claim:
6.25 x 7.5/168 = 0.27
As she has worked few hours in her room some months, this would make her utility bills claim almost negligible - though perhaps this is right?
I would really appreciate other peoples' views on this as I want to get it right but the more I speak to HMRC, the more I am getting confused!
Yes, this is the route of complex calculations. What you can do instead is provide the Use of Home allowance. This is set as a "reasonable" value, determined by yourself and your client to cover items such as gas, electricity, council tax, phone, broadband etc. HMRC do not state what "reasonsble" is though but I work on the basis of "what would it cost to locate the business in dedicated premises?"
So in your case, if your client was going to obtain premises, calculate what the rent, rates, utilities would come to for that and take a reasonlable figure from that. Obviously you have to factor in a "convenience" credit - take into account that your client doens't have to leave the house etc.
Also, bear in mind that if your client owns the property and applies the 1/8th rule, when they come to sell it, that 1/8th could be subject to CGT.
Thank you for your response - it makes more sense and is in line with what I have learnt - my head was getting a bit bamboozled with the complicated calculations the HMRC were suggesting.
I think I am going to go for the 1/8 approach however would she still be subject to CGT if I only applied it to utility bills and not mortgage interest / council tax? I ask as I believe she is putting her house up for sale shortly - wouldn't she be exempt as long as she used her treatment room for some kind of personal use as well?
Kind regards,
Caroline
-- Edited by CarolineS on Friday 20th of June 2014 11:14:59 AM
