Tax return - claiming mortgage interest - help needed

[leeloo1]

Hope Mr Anchovy is here as following this thread earlier in the year I'm trying to work out how to claim my mortgage as an expense but can't work it out - I am mathematically challenged!

So far I've got as far as:

• the mortgage interest was £10,420.56 for the year.
• 4 out of 8 rooms were used for childminding from 8am -6pm.

Where do I go from here. If anyone can tell me the calculation to do (or even better do it for me as well) I'd be very, very grateful. :)

Should have said the I childmind 5 days pw. Thanks again. :)

oh hah hah I was opening this thread with the intention of saying oooh you need MrA but you've already spotted that !

in which case, bump for you x x x

Lol, thanks anyway BALD. Good we all know who the resident expert is.

(I do know how I could possibly get a hold of him, is your query urgent, might be a few days?)

I'm imagining you shining a big MrA sign up into the sky now (a la Batman and the Bat signal) .

Thanks for the offer, its not very urgent - I'm just trying to get ahead with the dreaded tax return, otherwise I forget all about it until near the deadline then panic, but if you happen to bump into MrA then pointing him in the direction of the thread would be appreciated. :)

Would it not be (4/8rooms)(10/24hours)(5/7days)*£10,420.56=£1,550.68? Although, that would be including annual leave and bank hols and I don't know if you can include them?

I'm always here - hi BALDy (although we have never met!)

I'm afraid I can't do your calculation for you, but I can give you an example.

Anne's house has 3 bedrooms, 2 living/dining/family rooms and a kitchen. I'm going to ignore bathrooms/toilets and the utility room (the use of these rooms is incidental to both uses of the house as a dwelling and for the business).

All these rooms are roughly the same size except the family room is about 1.5x the size of the others, and only 1/2 of one of the bedrooms is used for changing nappies and for afternoon naps (this room also has a sofa bed in it and is used as a spare room for guests, but the cot and changing station are only used for childminding).

So taking each room in turn, working with a total of 6.5 'rooms' (taking the family room as 1.5):

2 bedrooms are not used at all for childminding.
The guest bedroom is used 50% for childminding so counts 0.5
The living room is used 4 hours each day for childminding (the rest of the time the mindees are in the kitchen or family room), and 5 hours each day (including weekends) by the family, so counts 20/55 or 0.36
The family room is only used for childminding during the week, but the family uses it on the weekend, so counts 5/7x1.5 or 1.07
The kitchen is used for 4 hours each day for childminding and 2 hours during the week, 4 hours on weekend days for the family so counts 20/38 or 0.53

So the total childminding use is 0.5+0.36+1.07+0.53=2.46 out of 6.5 or 38%.

In her tax return, Anne therefore claims 38% of all household expenses (mortgage interest, rent, service charge, council tax, water rates, and (unless there is a fairer method), gas/electricity/heating oil, boiler maintenance contract, window cleaning etc.). In the 'notes' box, Anne writes "Total expenses in relation to self employment includes 38% of household expenses incurred, apportioned according to the amount of time and space used for the business."

This does look complicated, but it is more accurate and will usually come up with a more favourable result for the taxpayer than a simpler calculation (in this instance you could take 3.5/6 rooms used 50/168 hours so 17%). And of course it compares VERY favourably with the 10% that is so generously granted in the concession (which doesn't apply to mortgage interest anyway).

Thanks for that MrAnchovy, I'll have a go at translating that into my house and see how I go.

I didn't realise we could charge more than 10% for Council tax and water rates... do NCMA say 10% just to make it simpler to work out?

ah mranchovy, can you answer me this....

If we were to buy a house. And the house has a chiropractor clinic built as a separate unit next to the house, where the current owners runs his practice, could we buy this house together with our business, so that we can run our business from the facilities currently in use by the chiropractors clinic? So, WE buy the house, and the business buys the commercial premises, although it is all the same property?

Thanks again, when I actually worked through your example and substituted my figures, then what you'd done made total sense (also I got to see how you worked out the percentages ). If I'd attempted to work it out at all I would almost certainly have used the 'Y' hours/168 hours method.

I've ended up with:
3 bedrooms are not used at all for childminding.
The living room/dining room (counts as 2 rooms) is used 10 hours each day for childminding, and 5 hours each day (8 hrs at weekends) by the family (41), so counts 50/91 or 0.59 x2 = 1.1
The kitchen is used for 10 hours each day for childminding and 1 hour by family during the week, (2 hours on weekend) so counts 50/59 = 0.85
The utility room and hallway are used for naps for childminding for 4 hours per day and for 1 hour by the family = 16/23 = 0.7

So the total childminding use is 1.1+0.85+0.7=2.65 out of 7 or 38%.

I hope thats right!

Do you think that claiming Electricity/gas, Water rates, Council Tax and Mortgage interest at this higher rate will make me more likely to be inspected by HMRC (not that I'm doing anything dodgy - although I automatically feel sick and dodgy when figures are involved in case I've made a mistake somewhere) and would rather not have the hassle of being inspected. :(

Oh, will claiming at this higher rate affect me claiming the 10% gross wear and tear too? (not that I'm panicking here or anything. :( )

I didn't realise we could charge more than 10% for Council tax and water rates... do NCMA say 10% just to make it simpler to work out?

10% (for full time childminders) is the rate agreed by HMRC, and yes it is intended to be simpler. The HMRC guidance for childminders contains this statement:

"Childminders, whether members of the NCMA or not, may calculate their expenses using the NCMA/Inland Revenue agreement. Their statutory rights are not affected by the agreement. Childminders may calculate their profits on the normal basis if they wish to do so."

What it doesn't say is that in many cases they may be very much better off calculating their (expenses and therefore their) profits on the normal basis, ie using allowances which are available to everyone.

QuintessentialPains

Well yes, but there are many complications. For instance you will have to pay capital gains tax on the clinic, the clinic will incur business rates (does it have planning permission for that use?), you may want to form a company for your business and rent the clinic to the company, you may not be able to get a residential mortgage for the whole of the purchase price because of the clinic etc.

You need an accountant.

So the total childminding use is 1.1+0.85+0.7=2.65 out of 7 or 38%. I hope thats right!

Arithmetically that looks OK. I can't comment on whether it is a fair apportionment: some areas of challenge could be whether the utility room and hall is 'worth' a whole room, and whether these areas are in fact used more by the family (laundry?).

If this is the first year that you have done this and it makes a big difference to your tax bill, don't forget that you can go back and resubmit previous years tax returns. You can resubmit 2009/10 online up to 31 January 2012, for 2008/9 or 2007/8 (you can't go any earlier than this now) you will have to write to HMRC. More details here. If you do this, it may trigger further questions from HMRC about the details of your calculation but it is unlikely to increase your chances of an inspection, unless it means you are making losses year after year.

The 10% wear and tear allowance is a fixed allowance that is entirely separate from any of this so it is not affected.

hello me ole mucker, I didn't need my Batman-stylee skylight in the end

cool