how to calculate proportion of rent as allowable expense

deathtocaptcha · 06-07-2016 04:55PM #1

I'm self employed, work from home and just moved in to a new place.

I *needed* a 2 bedroom place (one for work, one to sleep) so therefore I'm paying more than I otherwise would have done had I just needed a one bedroom place.

I know rent is an allowable expense and revenue say this in relation to it:

Where expenditure relates to both business and private use, only that part which relates to your business will be allowed. Examples of such expenditure are rent, electricity, telephone charges etc., where the premises involved is used partly for business and partly for private purposes. These expenses will need to be apportioned to exclude the private use.

My question is how do I calculate the proportion of rent that is an allowable expense?

The fairest, simplest way in my mind is to document all the one bed places available near me and their prices, then subtract my current rent from that average. So let's say I'm paying €1k/month for a 2 bed place but a 1 bed place in the area would average €750. My allowable expense is therefore €250...

Is that an acceptable formula? (obviously provided I take screenshots, get emails, newspaper clippings etc as proof of prices).

Any other formula would seem unfair to me - i.e. if I work 40 hours / week (24% of total hours in the week) and only use 1 / 4 of the square footage of the house for work, that would mean it'd be (24% of rent) / 4 which so paying €1000 in rent would mean €60 is an allowable expense... which just seems unfair given the fact I wouldn't be able to get a 2 bedroom place for €60/month more than a 1 bed place...

BabySlam · 07-07-2016 07:53AM

1. does your landlord know you are using it for work - if customer facing business do you have public liability insurance.?
2. if you own the property the portion non-residential will attract capital gains tax when you sell (there are a few exemptions)
3. Claim up to two-thirds max of costs
4. Floor area proportion is a good guide for the "rent" i.e. square feet or metres
5. Make sure your business is not one which needs planning permission to operate from a property. This is strongly related to whether customers are calling to your "office". Are you creating traffic congestion/ parking difficulties.
6. There may be a clause in your rental agreement prohibiting business use (which gives rise to rates bill/commercial water charges etc).

deathtocaptcha · 07-07-2016 12:38PM

BabySlam wrote: »

1. does your landlord know you are using it for work - if customer facing business do you have public liability insurance.?
2. if you own the property the portion non-residential will attract capital gains tax when you sell (there are a few exemptions)
3. Claim up to two-thirds max of costs
4. Floor area proportion is a good guide for the "rent" i.e. square feet or metres
5. Make sure your business is not one which needs planning permission to operate from a property. This is strongly related to whether customers are calling to your "office". Are you creating traffic congestion/ parking difficulties.
6. There may be a clause in your rental agreement prohibiting business use (which gives rise to rates bill/commercial water charges etc).

It's contracted IT work so no clients ever in premises, no public liability needed or traffic congestion etc. It's rented accommodation so no need to worry about capital gains..

Lets say I'm paying €1,000 month for rent of a 2 bed place. Let's say it's 1000sq/ft.

15% of €1000 = €150.

So in effect what we're saying is it costs me €150/month to rent this office space, which probably isn't fair reflection of the actual cost (I'll have to measure the place and crunch numbers)... but should the actual cost not be the difference between paying for a 2 bedroom place -v- a 1 bedroom place?

I think I remember seeing that this was an acceptable method of calculation but I can't source it now..

edit: got it: http://www.fenero.ie/claiming-home-office-expenses/

There is an alternative to this method of calculation. You may instead claim the additional costs incurred by renting a property of the size you have. By way of explanation, it could be a fact that a 2 bedroom property would be sufficient for personal purposes. Had you instead rented a 3 bedroom property due to extra space required for business purposes, it would be acceptable to claim the additional cost of renting a 3 bedroom property over a 2 bedroom property. If you are choosing this alternative method it would be advisable to retain evidence of rent costs of various properties at the time that you started to let your current property. This could be used to justify the amount being claimed.

CIARAN_BOYLE · 08-07-2016 11:00AM

You have to be able to justify. Floor space is considered an easy method of calculation. Less work.

Its not the whole story obviously but its an easy method, any justifiable method will work.

deathtocaptcha · 08-07-2016 12:15PM

CIARAN_BOYLE wrote: »

You have to be able to justify. Floor space is considered an easy method of calculation. Less work.

Its not the whole story obviously but its an easy method, any justifiable method will work.

I agree floor space is easier to justify but it probably won't be an accurate reflection of real world cost to me...

For example an extra room typically adds €300+ to rent... i.e. a 2 bedroom place will be ~€300+ more than a 1 bedroom place all things being equal because you can have 2 people renting as opposed to one.

Rent is typically priced not based on square feet but on the amount of bedrooms in a place and my fear is by calculating office space based on square feet I'll be screwing myself unnecessarily.

If there's a big difference in both calculations, what I might do is average the two and that way nobody can accuse me of being unreasonable.

4ensic15 · 09-07-2016 10:23PM

It is generally accepted that if the total floor area is 900 sq ft and the area used for business is 300 sq ft then 1/3 of the rent is deductible. The same applies to the overheads. You could live in a bedsitter or in a different location so nobody is going to just subtract the area used for the business and say you could rent a similar for less than the rent and allow you the difference.

BailMeOut · 12-07-2016 06:00PM

The answer is what you can with a straight face explain to a revenue official should you get audited. I used to just do a % of floor space but accountant said that was way too low as you use more than your office to work from and chances are you are renting a bigger place that you would needs otherwise. At the end of the day there is no exact rules and open to interpretation and opinion for both you and revenue. So use a number that you think is right and correct.

deathtocaptcha · 12-07-2016 06:20PM

BailMeOut wrote: »

The answer is what you can with a straight face explain to a revenue official should you get audited. I used to just do a % of floor space but accountant said that was way too low as you use more than your office to work from and chances are you are renting a bigger place that you would needs otherwise. At the end of the day there is no exact rules and open to interpretation and opinion for both you and revenue. So use a number that you think is right and correct.

Out of curiosity, what was the % of rent you ended up deducting before and after speaking to accountant?

Doing it by floor space, I'd probably come out with 20%... doing it my own method, I'd come out with ~35%.

BailMeOut · 12-07-2016 06:29PM

deathtocaptcha wrote: »

Out of curiosity, what was the % of rent you ended up deducting before and after speaking to accountant?

Doing it by floor space, I'd probably come out with 20%... doing it my own method, I'd come out with ~35%.

I do 35%

how to calculate proportion of rent as allowable expense

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