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Why is my home office selected for verification second year in a row?

Posted 23 July 2015 under Tax Questions

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Candy says:
21 July 2015 at 19:37

I work from my home office as a graphic designer. My annual income is under R500 000. This is the second year in a row I've been selected for verification. Any idea why and what does it mean? What should I be doing differently to prevent being flagged? Is it a reflection I'm doing something wrong?

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TaxTimTaxTim says:
22 July 2015 at 11:29

There are certain areas where requests for verification are common. These include medical expenses not reimbursed by medical aid, repairs and maintenance and home office expenditure. It doesn't mean you are doing anything wrong. Just ensure you are eligible to deduct home office expenditure and if so, you have all the relevant supporting documents available to substantiate your expense deduction.

Can I deduct home office expenses?

Candy says:
22 July 2015 at 11:55

As I work solely from my home office, I assume I am eligible to deduct home office expenditure, am I?
I do not claim for medical expenses as I am on my husband's medical aid so doubt that is an issue.
I have given my current tax consultant the size of my home office in relation to our house and indicated that for the Rates, Water & Electricity, Domestic Wages, etc, the correction portion should be calculated.
The house is in my husband's name so the Rates, Water, Lights comes off his account. I make payments to him to cover my contributions for my home office. Is this fine?

Last question: the bank account details that SARS has on record for me are for the first one that I opened and used at my first job. One of my clients uses it to make payments to me. I opened another account years later, with the same bank, but with lower rates and my other clients use that one.

Should I change it so all my clients to pay me into the same account (and make sure those are the details held by SARS)? I declare all the income I receive regardless of which account its paid into (and assume SARS can check my two bank accounts, under my name, regardless) but what is right/wrong?

TaxTimTaxTim says:
22 July 2015 at 22:22

If you are self-employed, in order to claim home office expenditure you do need a part of your home exclusively used for doing your work and fitted out as such and not used for any other purpose. Home office expenditure includes rent, interest on mortgage, repairs, electricity and water, rates and cleaning and any other expenses related to your office. This expenditure must be apportioned based on the size of the office compared to the square meterage of the whole building, and can then be deducted against income earned. Other expenses which may be deducted include stationery, office equipment, phone costs (business only), ADSL and wear and tear on your cell phone.

As long as the expenses for your office can be justified, then SARS should accept the deduction. Since SARS have requested supporting documentation from you, In order to verify the rates, water and electricity deduction, you should give SARS bank statements which indicate the payment to your husband as well as the bills in his name and also a sworn affidavit from him which states that you pay him for the expenses related to your home office.

It is acceptable to have more than one bank account for your business as long as you declare all income to SARS (which you are doing). From a financial management and record keeping point of view, it is advisable to have a separate bank account for business versus personal expenditure.

I hope this clarifies your questions.

Candy says:
23 July 2015 at 18:37

Thanks that helps. My tax consultant said they have already sent the requested documentation to SARS - I assume that must be the Excel spreadsheet that I supply them with that has all my income and expenses recorded on it, as well as my Logbook and RA and Income Protector tax certificates. Should I follow up with my tax person to find out if they need the additional info for water, lights, etc as you outlined above, or leave it/only do so if they ask?

TaxTimTaxTim says:
23 July 2015 at 21:21

Yes, rather follow up to be safe. It's always better to provide as much support as possible especially if the amounts are significant.

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