Tax on using home for a side-job

[Redconnect]

Hi all,

I'm a PAYE employee interested in figuring out how profitable an e-commerce side job would need to be to make it worth my while. I have various questions after reading up about the upcoming LPT valuation:

1. How do revenue determine if I am using part of my house as a business so that I would qualify for relief on LPT or I would be liable for CGT if we sell it?
2. For example, if I claim part of gas, electricity and broadband bills as expenses for an e-commerce business, will Revenue determine that I am using part of the house for a business or is it only if I register as a company and use my home address as the official company address?
3. If I want to do a calculation to determine how profitable an eCommerce side job would need to be to make it worthwhile - what's the best way to estimate how much the tax reliefs and liabilities would be?
4. Here are some hypothetical scenarios in case it's easier to answer explain these issues with case-by-case examples:

Scenario A:
John lives in a house which he owns and occupies as his only residence. He is a full time PAYE employee and has been working from home throughout the pandemic. He recently claimed working from home relief from Revenue for gas, electicity and broadband that he used for his PAYE employment in 2020. Now that things are starting to open up a bit and he is fully vaccinated, he has started to earn additional non-PAYE income working as a delivery driver with deliveroo in his spare time. He uses the deliveroo app while he is at his home to log in and make himself available for deliveries. He parks the car that he uses for the deliveries in the driveway of his home. His taxable non-PAYE income is unlikely to exceed €5,000 net and €30,000 gross per year and he will not be registered for VAT. His accountant advises him to claim the following expenses for this side job: a percentage of his electicity bill for charging his mobile phone, a percentage of his mobile phone bill, the full cost of the additional insurance costs for using the car for deliveries and the cost of petrol for the deliveries, the cost of getting the car cleaned after one of the deliveries spilled all over the back seat.

Questions:

How will Revenue determine whether John is using part of his home as a business?
What and how does John have to communicate to Revenue about how he operates his side-job?
How will Revenue distinguish between John using part of his home for his PAYE employment vs. for his side job?
Will John be entitled to any reliefs on LPT?
If John sells his house will he be liable for CGT? How will the liability be calculated?


Scenario B:
John lives in a house which he owns and occupies as his only residence. He is a full time PAYE employee and has been working from home throughout the pandemic. He recently claimed working from home relief from Revenue for gas, electicity and broadband that he used for his PAYE employment in 2020. He has recently started to sell candles on Etsy in his spare time. He uses his laptop while he is at his home to use the Etsy website. He stores the candle making materials in his home and makes the candles in his home. The process of making the candles require melting the wax, which uses heat that he pays for in his household electricity bill. His taxable non-PAYE income is unlikely to exceed €5,000 net and €30,000 gross per year and he will not be registered for VAT. His accountant advises him to claim the following expenses for this side job: a percentage of his electicity bill for making the candles, the cost of the raw materials, a percentage of his broadband bill for using the Etsy website, the Etsy website fees, shipping costs.

Questions:

How will Revenue determine whether John is using part of his home as a business?
What and how does John have to communicate to Revenue about how he operates his side-job?
How will Revenue distinguish between John using part of his home for his PAYE employment vs. for his side job?
Will John be entitled to any reliefs on LPT?
If John sells his house will he be liable for CGT? How will the liability be calculated?

Thanks!

 

[torblednam]

Answers are basically the same for both scenarios, as follows:

How will Revenue determine whether John is using part of his home as a business?
He'd have to be using part of his home EXCLUSIVELY for business, so unless he has a special Deliveroo room (joking) then clearly this would not be an issue.

What and how does John have to communicate to Revenue about how he operates his side-job?
If the taxable income is below 5k net and 30k gross, then he can file a form 12. If he exceeds either of these thresholds then he would need to register for income tax and file a Form 11.

How will Revenue distinguish between John using part of his home for his PAYE employment vs. for his side job?
Non issue, not applicable, they won't care unless he's making silly claims... See earlier point re exclusivity.

Will John be entitled to any reliefs on LPT?
No. Don't be silly John.

If John sells his house will he be liable for CGT? How will the liability be calculated?
Again no, see earlier point re exclusivity.

Also, in relation to claiming a percentage of his electricity bill "for charging his mobile phone", that percentage should probably be in the region of 1%!!

 

[mathepac]

Exam questions conveniently ignoring the planning considerations of using private premises for commercial purposes and the insurance and safety implications of manipulating, storing and selling combustible materials in a residential property?

 

[Redconnect]

Answers are basically the same for both scenarios, as follows:

How will Revenue determine whether John is using part of his home as a business?
He'd have to be using part of his home EXCLUSIVELY for business, so unless he has a special Deliveroo room (joking) then clearly this would not be an issue.

What and how does John have to communicate to Revenue about how he operates his side-job?
If the taxable income is below 5k net and 30k gross, then he can file a form 12. If he exceeds either of these thresholds then he would need to register for income tax and file a Form 11.

How will Revenue distinguish between John using part of his home for his PAYE employment vs. for his side job?
Non issue, not applicable, they won't care unless he's making silly claims... See earlier point re exclusivity.

Will John be entitled to any reliefs on LPT?
No. Don't be silly John.

If John sells his house will he be liable for CGT? How will the liability be calculated?
Again no, see earlier point re exclusivity.

Also, in relation to claiming a percentage of his electricity bill "for charging his mobile phone", that percentage should probably be in the region of 1%!!

Thanks for clearing this up for me - appreciate it!

 

[cremeegg]

While it is unlikely you might be liable for rates. If the local authority (not Revenue) decide the house is a business premises they can charge business rates. The practice is a little vague as each LA is different.