Home based business or Home Office - what can you claim against business income (12/2014)
Some home expenses may be allowable for business. It can be confusing to work out what is allowable and it really all depends on your individual circumstances.
I will try to outline the main expenses that can be claimed for use of your home for your business:
What is an “Allowable Expense”?
An allowable expense is a deduction only if it is incurred “wholly and exclusively” for business purposes.
Allowable expenses for the use of your home as a business premises fall broadly into two categories, fixed costs and running costs.
These are costs relating to the whole house that have to be paid whether or not there is any business use, examples include mortgage interest, insurance, general repairs, rent and water charges.
If you have an office within your home for only business use, then a part of these costs are an allowable expense and would normally apportioned by area and time.
Mortgage Interest, Rent and Flat Rate Water Charges - Once you establish the proportion of your home used for business purposes and the number of hours each day of the business use, then a proportion of these may be allowed against your business income. Capital repayments on a mortgage are not allowable, and as a sole trader, you cannot claim a separate rent allowance from his or her own business.
Insurance - If the business use is covered by a separate policy then that policy is allowed in full, with no part of the household policy being allowed. Otherwise an appropriate proportion of the premium is allowed.
Repairs and Maintenance - A proportion of the cost of general household repairs are allowable in line with the proportion of the house that is solely used for business. However, repairs that relate solely to a part of the house not used for the business are not allowable.
Some household expenses may increase with business use, including cleaning, heat and light and metered water and these are the day to day running costs of the house.
Cleaning - The allowable expense proportion of cleaning depends on the circumstances. For example, if you give a household cleaner a strict instruction not to enter the office area then payments to the cleaner are not an allowable expense. If the cleaner did clean the office area then you could apportion the cleaning expense based on area.
Heat, Light and Power - A proportion of the business use must be calculated in relation to total use. The calculation will be in proportion to the type of use, for example, a photographer using a room as a studio with specialist lighting would have a higher usage than say, a few desks with a PC and a printer using a spare bedroom. It also depends on the amount of time each day that the office area is in use as compared to the total time the house is heated and lit.
Telephone and Internet - The cost of business calls is allowable as well as a proportion of the line rental and internet connection to the extent that they are used for business purposes.
Metered Water Charges - In the case of minor business use of the premises, there is no business use of water, so none is allowable.
Tips for Managing Your Expenses
Keep records and receipts of all expenses.
Make reasonable claims for business use so that you are happy you can justify to the Revenue if enquiries are made.
Organise your expenses on a timely basis so that this does not delay completion of your accounts/tax return or affect what you can claim.
Try not to use estimated expenses as these could be less than the actual amount spent and the Revenue may disallow if these are not supported by evidence. If expenses claimed are subsequently, it may give rise to an additional tax liability and possibly interest and penalties.
The foregoing is only an outline and what is allowable for your business really depends on your individual circumstances and it’s always best to ask an Accountant if you are unsure of anything.
I hope you find this useful. If you have any questions or queries on anything, you can contact me.
Timothy Kelliher Chartered Accountant