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We act for many self-employed publicans and have always shown domestic rent separately in drawings with commercial rent as fully allowable.
A local Inspector of Taxes has stated in a particular enquiry case, that this does not appear commensurate with the accommodation enjoyed and that the Revenue relies on TA 1988, s 74 in disallowing non-business rents, fixing a maximum business proportion of two-thirds of the overall rents (domestic and private).
Have readers come across this line of questioning and, if so, what was their response?
(Query T16,591) — Regular.
We act for many self-employed publicans and have always shown domestic rent separately in drawings with commercial rent as fully allowable.
A local Inspector of Taxes has stated in a particular enquiry case, that this does not appear commensurate with the accommodation enjoyed and that the Revenue relies on TA 1988, s 74 in disallowing non-business rents, fixing a maximum business proportion of two-thirds of the overall rents (domestic and private).
Have readers come across this line of questioning and, if so, what was their response?
(Query T16,591) — Regular.
Reply by Man of Kent
There is quite a range of buildings that combine the functions of owner's residence and trade premises including boarding houses, family-run hotels, farmhouses, pubs, small private schools and shops or workshops with flats over, to name only what comes quickly to mind. All are covered by the same set of principles in the matter of allocating rent and other overheads, such as insurance, upkeep, council tax, rated services, light, heat and power, between trade and private use.
The trade area can either be allocated or dedicated. Under allocated, one counts the rooms currently put to trade, as in boarding houses, hotels and schools. Under dedicated, there is a permanent trading area of business oriented internal design, such as in shops and pubs. The overheads are pro-rated according to the facts, based on either the number of rooms or floor area, or volume. Volume applies when floor area is misleading. For example, if the business involves storage, stack height is as important as floor space. Volume also signifies when the generous height of public rooms involves a higher heating cost.
Sometimes one of the apportioned items becomes a direct charge. For example, if the trade use of power is heavy, its electricity and/or gas may be separately metered and billed.
So far as concerns rent paid for a pub, if the ground landlord charges separate rents for the private and public areas, there is no question of apportioning the total. The agreement is finite and the sum chargeable in the pub accounts is the amount payable in respect of it, whether the Inspector thinks the landlord should have charged a different amount or not. Private quarters in a pub do not compare with residential accommodation elsewhere. Suppose the publican's home was in the next street and the pub flat was sublet; the tenant would be subject to alcohol-fuelled noise from mid-morning until late at night. There is no guarantee that the flat would command the same rent as one in a peaceful area. A rent charged for the entirety should be apportioned in the ratio of the two areas, as described above, not forgetting to include a suitable fraction of a room in respect of office facilities in the flat. There is no set fraction.
The watchword is: be accurate and do not allow oneself to be bullied.
