How to fix duality of purpose problem on leased flat

[naos]

Hi,

I asked on General forum about contents insurance for the flat I rent through my Ltd Co in which I have an office and I also live (with my family). I got a reply that I have probably issue of duality of purpose here (putting flat as an company expense and at the same time living there). I don't have any other UK address, just this one.

My accountant was saying this is perfectly ok to lease a flat through my Ltd company, I was suspicious but ultimately I said ok, he knows this stuff.

As I took some reading online I'm now convinced there is an evident conflict, and I cannot put rent for this flat as an company expense, am I right ?

Now I wonder how can I fix this, rollback it somehow to switch this renting to me in person. The good thing is that I rented it quite recently - since 10th December. The bad is that I already paid, from company account, two rents and a deposit plus agency fee.

Is there a way to rollback all it somehow ? Can I just not claim these amounts as company expenses and leave the fact that they were made from company money ? Or should I somehow put the money back and repay from my personal money ? I'm also registered already for Council Tax and some media as my Ltd but I suppouse this is the easiest part to fix?

Thank you for help,
Luke

[jamesbrown]

Wow. You need a new accountant. I can't imagine what would have led them to advise you that claiming for the total cost of your flat was reasonable. It isn't, remotely. Since it isn't a commercial space, you can only claim for a small portion of your actual expenses based on time and area or, more sensibly, claim the standard allowance of £4 per week (or £18 per month) that HMRC allow for home office use without any questions. It's highly unlikely, after properly accounting for time and area, that an itemized claim will exceed the standard allowance.

If you have a dedicated office space, and claim for that, you'll risk other problems such as business rates and capital gains tax on sale.

This is really spectacularly bad advice you've received from your accountant, but you have to blame yourself to a large extent. I'd be interested to see the actual wording of that advice because it's insane, on the face of it (do you really have an accountant? )

I'm sure a proper accountant will be along to advise on how best to resolve it but, since you haven't filed any returns on this basis, it should be OK. You may be able to treat it as a directors loan and pay it back ASAP, for example. Was the rental agreement and insurance in the company name?

[LisaContractorUmbrella]

Basically, you work from home which is very different from leasing property through a Ltd Co. Do you have to work from home or do you just chose to? The rules will be different depending on the answer to that question. There is quite a lot of info on the HMR&C website about this but first off I would advise you to consider using another accountant.

[naos]

Yes, the rental agrement is in company name, also DPS deposit. I don't have to work from home, I mostly work at a customer site, I sometime do work from home because I can but not because I have to.

What is my option then, should I go with director's loan ? I have a good relationships with the landlord I may be able to write a new rental agreement with him for me in person, I don't know about DPS deposit but can check it too with him.

Well, looks like a face palm, I'm looking for a new accountant ASAP then!

[SueEllen]

Yes, the rental agrement is in company name, also DPS deposit. I don't have to work from home, I mostly work at a customer site, I sometime do work from home because I can but not because I have to.

Actually running a business and being a full-time employee who works from home is different.

Doing your company accounts, expenses, research, getting more clients etc counts as working even though it's not fee earning.

Unlike an employee who works from home, people who are self-employed under various structures have to do additional work to ensure they actually have a business.

In your case you can claim the £4 per week with no questions asked it's when you start claiming more then you need to be able to back your claim up.

What is my option then, should I go with director's loan ? I have a good relationships with the landlord I may be able to write a new rental agreement with him for me in person, I don't know about DPS deposit but can check it too with him.

Do a google search particularly for any pages written by HMRC and check yourself what a directors loan is before you do anything else.

Accountants will always advise you and some will give you very good advice, but you should always check particularly by looking at HMRC's pages that what they are saying is legal and a good idea.

[philip@wellwoodhoyle]

This is really spectacularly bad advice you've received from your accountant, but you have to blame yourself to a large extent.

Depends on what information was given to the accountant. Did you actually make it clear to the accountant that you and your family were going to live in the flat as your "home"? I somehow think s/he wasn't aware of that.

It's fairly normal for a contract to rent a flat to be nearer to work when they live too far away to commute. There is no problem with tax etc as long as you/your family continue to live in your "home" and you just have the flat as a base, say Mon-Fri, returning "home" at weekends.

If the op just asked "I've got a contract in Glasgow, can I put the flat costs through the business?" then it's not surprising the answer he got. Of course, you could say that the accountant should have asked more questions.

Without knowing the exact conversation, it's impossible and unfair to criticise the accountant.

[jamesbrown]

Without knowing the exact conversation, it's impossible and unfair to criticise the accountant.

Well, I did say I'd be interested in the precise wording IMHO, a professional answer to this question is not simply "yes" under any circumstances. The rules are quite clear on having a separate permanent residence as the basis for claiming the costs of accommodation when working away from home (and there are many other rules too). However, this is largely on the OP for not doing some basic research; one cannot entirely blame the accountant, regardless of what they did or did not say.

[SueEllen]

Well, I did say I'd be interested in the precise wording IMHO, a professional answer to this question is not simply "yes" under any circumstances.

I've found talking to some contractors they don't actually listen to the full conversation or read a full email when it comes to their accounts and working practises.

So the accountant could have quite easily have given the OP a long reply but the OP only heard "Yes".

[LisaContractorUmbrella]

I've found talking to some contractors they don't actually listen to the full conversation or read a full email when it comes to their accounts and working practises.

So the accountant could have quite easily have given the OP a long reply but the OP only heard "Yes".

Yep you are right there SE - have to agree - people usually only hear what they want to hear (is that breaching NLUK's copyright?)

[Wanderer]

Is there a way to rollback all it somehow ? Can I just not claim these amounts as company expenses and leave the fact that they were made from company money ? Or should I somehow put the money back and repay from my personal money ?

I agree that you can't claim for the flat if it's your only residence.

It's a simple enough one to fix though so don't panic. Tell your accountant that you are not going to claim for the cost after all and ask them to allocate the amount you took to the director's loan account and this can be balanced up the next time you pay out a dividend.

If you do nothing, then you would have to account for it as a benefit in kind and pay the tax on the BIK.