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What can I claim for using my home as a workplace?

If you run your escorting (or other sex-work) business from home you are entitled to deduct from your income the expenses that are ‘wholly and exclusively incurred’ as a result of using your home. The question is: what expenses can be included, how do you work out how much you can claim, and are there any conditions you need to satisfy?

The same question has recently been posed on the Saafe forum:

Hi I’m just wondering what others do re claiming for their expenses on ‘work premises.’ I’m in the process of submitting my tax return and wondering how much I can claim relief for in using my own flat for work use? I have heard something like 30 per cent of rent/bills etc is permissible but also read elsewhere that you can only claim relief if you have a specific area which is reserved purely for work? Any advice would be great!

If you follow this link you will see it has generated a variety of responses. So let’s start by clearing away some of the misconceptions.

Misconceptions

Is 30% of rent/bills permissible?

No. It all depends on your working situation. In some cases 30% might be reasonable, but in others it certainly won’t be.

Do I need to have a specific area reserved purely for work?

No. It is true that the general rule is that expenses must be wholly and exclusively incurred for the business, but exclusive doesn’t mean that a part of your home needs to be used only for business. It just means that at the times when it is being used for business it must be used exclusively for business. So if when you entertain clients you have exclusive use of the spare bedroom but at other times the same space is used by your partner to strip down motorbike engines, you will still satisfy the exclusive rule. You just need to make sure that your partner vacates the room before you take your client in there; and he’s not sitting in the corner greasing his nipples and applying WD40 to his nuts while you do your stuff.

Is it true that the amount you can claim is £4 per week?

No. There is a limit of £4 per week but this is for employees who are required by their employer to work at home. It is not relevant to self-employed business owners operating (wholly or partly) from home.

Is it a good idea to ring HMRC and ask them to work it out for me?

Not really. The HMRC staff certainly try to be helpful and approachable but, as we will see in a moment, calculating the amount you can claim is not an exact science and you certainly cannot rely on them to give you the most advantageous advice. Far better to contact an accountant like one of these Accountants4escorts

So what categories of expenses can you claim for?

  • Rent – if you rent your home then you can claim for the business proportion of the rent you pay. We’ll look in a moment at how to calculate the business proportion. It is important to realise that (like all expenses) the rent must actually be paid – you cannot base a claim on what you think the rent would be if you were having to rent, and if you own your home you cannot charge yourself a rent and then claim part of it as a business expense.
  •  Mortgage payments – you need to be a little bit careful here because normally your monthly payments will be made up of two elements, interest and capital. You can only claim for the business proportion of the interest and not for the bit of the repayment that goes towards paying off the mortgage.
  • Council tax – again the business proportion can be claimed
  • Light and heat – again this can be claimed
  • Water – yes, the business proportion can be claimed
  • Insurance for both buildings and contents – yes, the business proportion can be claimed
  • Repairs and re-decoration – again this can be claimed, so a proportion of external repairs and any internal decoration etc that relates to the parts you use for business.
  • Cleaning and laundry – if you pay a cleaner then the appropriate proportion can be claimed. This must actually be paid – you cannot pay yourself for cleaning or claim for what you think a cleaner might cost. Otherwise an appropriate proportion of cleaning materials can be claimed. And don’t forget laundry, which can be substantial if your method of working results in a lot of extra washing of sheets and towels.

So what would be a reasonable proportion?

It all depends on the way you work and how use your home, but you need to take into account the amount of space used by your business and the amount of time it gets used for business. You can (if you really must) work out the space by measuring the floor area of each room, but it’s easier to just count the main rooms – you can exclude hallways, kitchens, bathrooms, airing cupboards etc.

The easiest way to demonstrate how this works is to give a few examples.

  1. Edelweiss is an in-call escort who sees most of her clients at home. As well as the usual kitchen and bathrooms her house has separate living and dining rooms and 3 bedrooms, one of which is used solely for business. The ‘dining room’ has dual use, she estimates that for about half of the time she uses it as an office for answering emails, updating her website and doing her book-keeping and for the other half of the time her children use it for homework and practising the saxophone. Each of the 5 principal rooms represents 20% of the house so she claims 20% for the bedroom that is used exclusively for business and 10% for the shared dining room giving a total of 30%. Her combined mortgage interest, council tax, insurance, gas and electricity come to £1,000 per month so she claims 30% x £1,000 = £300 per month or £3,600 for the year. On top of that she estimates that washing sheets and towels for her business and providing soap and hot water for her clients to shower costs her and extra £25 per month or £300 per year. Her total claim is therefore £3,900.
  2. Eschscholtzia provides an in-call escorting service from her home which is a small one bedroomed flat. When she is entertaining clients the whole of the flat is used. Appointments typically start in the kitchen and then drift into the living room and bedroom. She also uses both main rooms for the admin side of her business. She estimates that about a third of her use of use of the flat is business related so she claims 33% of rent, council tax light and heat, insurance and water. These come to £900 per month so she claims £300 per month or £3,600 per year.
  3. Winter Jasmine never sees clients at home. The only business use is doing her business admin. She claims £5 per week (or £260 for the year) which she works out is equivalent to one room used for 2 hours per day.

Summary

As I expect is now obvious this is not a very scientific process, and there is no right answer. What is important is that anything you claim should be based on a reasonable calculation that can be justified if HMRC ask how it was arrived at. It needs to be based on actual costs and reflect the realities of how you work. And most importantly you need to write down how it was calculated in case it is challenged and you have to justify it later on.

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