A quick guide on how to manage costs and expenses as a work from home landlord

Managing a rental business from home

A landlord will often manage their property rental business from home, and in doing so will incur additional household expenses, such as additional electricity and gas, additional cleaning costs, etc. As with other expenses, the landlord can claim a deduction for these when working out the profits of the rental business.

Most unincorporated landlords will now prepare accounts on the cash basis.

Wholly and exclusively incurred

The basic rule for an expense to be deductible in computing the profits of a rental business is that the expenses relate wholly and exclusively to that business. This applies equally to a deduction for household expenses – they can be claimed where they relate wholly and exclusively to the rental business.

Actual costs

Where the expenses are wholly and necessarily incurred, a deduction can simply be claimed for the actual expenses. In reality, this will take some working out as household bills will not be split between personal and business expenses. Any reasonable basis of apportionment can be used – such as floor area, number of rooms, hours spent etc. Records should be kept, together with the basis of calculation.

Simplified expenses

Where a landlord spends more than 25 hours a month managing the business from home, the simplified expenses system can be used to work out the deduction for the additional costs of working from home. The expenses depend on the number of hours worked in the home each month, and the deduction is a flat monthly amount, as shown in the table below.

Hours of business use per month Flat rate per month
25 to 50 hours £10
51 to 100 hours £18
101 hours or more £26

The hours are the total hours worked at the home by anyone in the property rental business.

Example

Nadeem runs his property rental business from home. In 2018/19, he spends 60 hours a month working on the business in all months except August and December, in respect of which he spends 30 hours in each on those months working on the business.

For 2018/19 he is able to claim a deduction of £200 for expenses of running his business from home (10 months @ £18 plus 2 months @ £10).

The simplified expenses rule does not cover telephone and internet, which can be claimed in addition to the deduction for simplified expenses.

Partner note: ITTOIA 2003, Pt. Ch. 5A, Pt. 3

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Here’s how to reduce business and household costs by using simplified expenses

Simplified expenses for smaller businesses
Certain unincorporated small businesses may choose to use the ‘cash basis’ when calculating taxable income, under which participants are taxed on the basis of the cash that passes through their books, rather than being asked to undertake complex and time-consuming calculations designed for big businesses. Whilst easing the administrative burdens of preparing ‘traditional’ accounts, using the cash basis can also help with cash flow as it will not be necessary to accrue for income not yet received, or expenditure not paid out.
To complement the cash basis, HMRC also introduced ‘simplified expenses’ for small businesses. Basically, instead of working out the exact cost of certain expenses, HMRC allow the business to deduct a standard, or flat rate amount. Simplified expenses can apply to the following expenses:
• standard mileage rate for business use of cars or motorcycles;
• flat rate expenses for business use of home; and
• flat rate adjustment for personal use of business premises.
The taxpayer should, where relevant, record business miles for vehicles, hours worked at home and the number of people living at the business premises during the course of the tax year. At the end of the tax year, HMRC’s flat rates are used to work out the expenses, which are then included on the self-assessment tax return.
Vehicles
HMRC’s flat rate mileage allowances are designed to cover all vehicle-related running costs (insurance, repairs, servicing, fuel etc.). Current rates are as follows:
• first 10,000 miles               45p per mile
• exceeding 10,000 miles    25p per mile
• Motorcycles                        24p per mile
Using mileage rates is not obligatory, but once they have been used for a vehicle, they must continue to be used for as long the vehicle is used for the business.
Other travel expenses – train journeys, parking and such like – may be claimed on top of the mileage rates.
Where a car is purchased for business use, capital allowances may be claimed, but only if simplified expenses are not being used to work out business expenses for that vehicle.
Business use of home
A monthly deduction will be allowable if certain criteria are satisfied. Current rates are as follows:
Number of hours worked Monthly amount
25 to 50                                    £10.00
51 to 100                                  £18.00
101 or more                              £26.00

The number of hours worked in a month 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.
Mixed use
Where premises are used for both business and private purposes, instead of making the standard deduction outlined above, the business can make a deduction for the non-business use. The allowable deduction will therefore be the amount of the expenses incurred, less the non-business use amount. The non-business use amount is the sum of the applicable amounts (see below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:
Number of relevant occupants Applicable amount
1                                                               £350
2                                                                 £500
3 or more                                               £650

A relevant occupant is someone who occupies the premises as a home, or someone who stays at the premises otherwise than in the course of the trade.
Benefits
Simplified expenses may help reduce business and household costs, without needing to retain the associated paperwork. However, like any flat-rate scheme, simplified expenses may result in an increased tax liability. The scheme may not be for everyone and certain checks should therefore be made before using it.

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