Not so simple! By Mark Morton

  • By Mark Morton
  • 2 September 2013 00:00

The FA 2013 introduces simplified expense deductions for 2013/14 onwards. The rules apply to all trades, professions and vocations but not for a period if one or more of the partners in the firm at any time during the period was not an individual.

The fixed rates apply to:

• business mileage (rather than deductions for the actual costs of purchasing, maintaining and running a motor vehicle or motorcycle);

• a flat rate to calculate expenses relating to the business use of home; and

• a banded rate to calculate the adjustment for private use of business premises.

Have recently issued guidance on the implementation of the rules is contained in R&C Brief 14/13.

In relation to the rules on business vehicles, whilst the rates don't seem particularly generous the rules seem relatively straightforward - actual costs and capital allowances or 45p for the lifetime of the vehicle.

Use of home for business purposes

This has been an old chestnut for many years. Everyone used to claim £10/week but many now claim £4/week, based on the HMRC guidance relating to employees who work from home.

The new rules apply if, in calculating the profits of a trade of a person for a period, a deduction would otherwise be allowable in respect of the use of a home for the purposes of the trade.

The person can make a fixed rate claim instead of actual costs which is the total of the allowable amounts below for each month, or part of a month, falling within the period, where the number of hours worked in a month (or part) is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person's home wholly and exclusively for the purposes of the trade.

Number of hours worked

Allowable amount

25 or more

£10

51 or more

£18

101 or more

£26

So far so good but the government website (https://www.gov.uk/simpler-income-tax-simplified-expenses/business-use-of-your-home) states:

'You can only use simplified expenses if you work for 25 hours or more a month from home.'

This seems to contradict the legislation? Is this an HMRC change of policy to stop people claiming the £4/week. We have asked HMRC the question and they seem to infer that it is an error on the website. We will see if it is amended.

Premises used both as a home and as business premises

Where a person uses premises both as a home and as business premises e.g. a pub, the total expenses of the property need to be adjusted for the private use. This legislation introduces a fixed scale which can be used for the private use so that the business element of the expenses will be relieved. The person can claim an adjustment for private use based on the table below, rather than actual usage, if:

• a person carries on a trade at any premises;

• the premises are used mainly for the purposes of carrying on the trade but are also used by the person as a home;

• the person incurs expenses in relation to the premises and they are incurred mainly (but not wholly and exclusively) for the purposes of the trade; and

• in calculating the profits of the trade for a period, a deduction would otherwise be allowable for the period in respect of a part or proportion of the expenses.

Leaving aside the fact that the rates seem high, the rules do not contain any definition of the costs involved. However, R&C Brief 14/13 states:

'The flat rate includes all household goods and services, food and non-alcoholic drinks and utilities. It does not include mortgage interest, rent of the premises, council tax or rates. A reasonable apportionment of these expenses should be made based on the extent of the private occupation of the premises.'

This definition of costs seems to be non-statutory. It also means that even if a business were to use this add-back, it would still have to be computing a further add-back for mortgage interest, etc?

HMRC have confirmed that this is their view but not what it is based on!

So much for simplification!

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