Reply to: Time to increase the rent, I guess

[Jessica@WhiteFieldTax]

Was thinking about this more, Jessica. Do you really think a lot of people will begin doing the kind of thing I've described in this thread? Will you be advising it? Won't HMRC take a pretty dim view of it? Isn't it like sending them a letter saying, "Please investigate me?"

I doubt it will be mainstream advice for a contractor

[NibblyPig]

I personally run a B&B, that also provides lunch. The one guest I have even insists on cooking so I employed him as a chef. Said it helps him with some IR35 thing having 2 jobs.

[WordIsBond]

Well, joking aside, for some people rent will have merit in the post 16/17 world.

Was thinking about this more, Jessica. Do you really think a lot of people will begin doing the kind of thing I've described in this thread? Will you be advising it? Won't HMRC take a pretty dim view of it? Isn't it like sending them a letter saying, "Please investigate me?"

[WordIsBond]

I've looked into this in some depth recently, and there are a number of grey areas - in some cases intentionally....

Oh, is this an IR35 thread now?

[Jessica@WhiteFieldTax]

This is some text I wrote with another hat on, advising yoga teachers running classes/setting up a studio at home

Running a Studio at Home

Various things to think about:

~ planning permission – this depends on the scale of what you do. Use of your home for business, including a room in the home or a outbuilding, is permitted if the character of the property isn’t changed. This is vague, and different Council Planning Departments may interpret this differently. One test is to ask if someone parked outside would notice the business use, and the answer here will be different in a low density rural setting versus a high density urban one. Impact on the neighbourhood, inducing visitors to your home and parking, is also relevant. In practical terms one or two students a week will probably never be an issue, whereas several full classes maybe. Relationship with your neighbours can tip this one way or the other.

~ constructing an outbuilding- planning wise often possible under “Permitted Development Rights” – search further online. There is unlikely to be tax relief on constructing a building as its capital expenditure and not eligible for capital allowances; fit out costs are likely to be eligible for Capital Allowances on the other hand.

~ lease / mortgagor permission – again depends on the scale of what you are doing.

~ business rates – unlikely to be an issue, especially if the space has non exclusive business use (eg a room in home, or an outbuilding, that is also used for domestic or private use inducing, of course, your own yoga practice. The only time business rates may be a concern is if you have a large home studio running for many hours a day – and then planning would probably be in contention as well.

~ insurance – it should be possible to extend your home insurance for “home working”, to include public liability, but there is a marked variation between insurers, so be prepared to shop around (as a guide, my home studio adds c£200 to household cover)

~ Capital Gains Tax – your main home is normally exempt from CGT on sale. Non ecxclusive business use of an area will not change this. Exclusive use of an area, room or outbuilding, for business might depending on amounts. Its normally advisable to make sure that any business area also has a private use – including private or family yoga practice.

~ running costs – the running costs of your home studio space can be claimed against tax. This would include apportioned insurance costs, utility bills and repairs, but generally not Council Tax. if your home is rented a proportion may be deductible, deducting a proportion of mortgage interest is also possible in principle. Where expenses need to be apportioned reasonableness based on hours use or rooms is normally the preferred route, so long as it is sensible, fair and defensible in event of a tax enquiry.

~ setting up costs – constructing or adapting a home studio space is capital expenditure can cannot be claimed against tax, by deduction or Capital Allowances. Capital Allowances are available to give a tax deduction for fitting out costs such as props and furniture.

[Jessica@WhiteFieldTax]

Jessica, I thought CGT, planning permission would not apply, I believe on some HMRC literature for small businesses its exempt, they gave examples such as hairdressers/physio therapists, chiropractors etc who use one room their house as their working place to receive clients etc...

I've looked into this in some depth recently, and there are a number of grey areas - in some cases intentionally, as with hard and fast rules people can engineer a result.

Planning law, rating law, tax law, insurance law, all have different nuances to them.

It can be simplified down as saying that inncidental use of a home for business is permitted, but "inncidental" itself is a relative term.

For safety,mans to avoid complications, I would be cautious about 100% business use claims in part of the home.

[d000hg]

Does a home office have working hours? I think not.

If you have working hours then yes.

I use a room in my house solely as a home office, it has all my equipment in there such as servers, desktop, paperwork etc. Neither my wife or daughter go into that room as they it's to be treated as an office.

Fair enough. I think many feel that "I do some work in that room sometimes" means it counts as an office... in my view, it doesn't. But then most contractors don't WFH the majority of the time.

[SandyD]

You could say that, but in terms of rates, CGT, planning permission and insurance you may not want to.

Jessica, I thought CGT, planning permission would not apply, I believe on some HMRC literature for small businesses its exempt, they gave examples such as hairdressers/physio therapists, chiropractors etc who use one room their house as their working place to receive clients etc...

[Jessica@WhiteFieldTax]

Does a home office have working hours? I think not.

I use a room in my house solely as a home office, it has all my equipment in there such as servers, desktop, paperwork etc. Neither my wife or daughter go into that room as they it's to be treated as an office.

You could say that, but in terms of rates, CGT, planning permission and insurance you may not want to.

[The Spartan]

So you don't go into your home office at all outside working hours? Use your PC for some gaming in the evening, etc...

Does a home office have working hours? I think not.

I use a room in my house solely as a home office, it has all my equipment in there such as servers, desktop, paperwork etc. Neither my wife or daughter go into that room as they it's to be treated as an office.

[SueEllen]

So you don't go into your home office at all outside working hours? Use your PC for some gaming in the evening, etc...

Laptops and tablets are portable devices.

[d000hg]

10% private? Well if some people's activity on this forum is classed as private I think that 10% needs bumping up a bit....

So you don't go into your home office at all outside working hours? Use your PC for some gaming in the evening, etc...

[WordIsBond]

Well, joking aside, for some people rent will have merit in the post 16/17 world.

Yes, it will, I guess. But the savings isn't very much and then you have to justify that it isn't excessive. Hardly worth the hassle, it seems to me.

Have a trawl through the HMRC site for guidance on apportioning of home costs for business use.

Expect to be challenged if you take the pi$$ though.

Most people claim the £4 because it's a "no questions asked" allowance.

That HMRC guidance (and the £4) is on how much you can take tax free. I was proposing to declare it as income (minus HMRC-approved expenses, of course).

Yes, I think it is probably legal, and as Jessica said a lot of people might do it. But it seems to make you a target, for not much benefit. £240 / year? And they'll change the rules in three years and suddenly it will trigger capital gains when I sell my house, or something.

And once you are on their radar, they'll find something else, or manufacture something else.

When everyone else is doing this and HMRC aren't challenging it, then maybe I'll do it too.

[Contreras]

So, MyCo has been paying me £4 / week for the use of my home office.

That's way below market rate, though. Seems like the government thinks a room should be worth £7500 a year, starting next year, based on Rent a Room. Maybe that's too high outside of London, though. I'll charge a nice conservative £4K / year to rent a room to MyCo Ltd. Hard to argue you could rent a room for less than that, most places, so it would be hard for the tax man to say it is above market rate. After all, it includes utilities, etc.

That will be £2K each for my wife and I. Sure, we'll pay basic rate tax on it (we're staying below the higher rate threshold). It is rental income, after all. Rent a Room doesn't apply for businesses. So, 20% on our income tax, but it is rent, not salary, so no NI. Total tax hit £400 each, £800 total.

It is also a legitimate business expense. So no CT. And no dividend tax. If the company didn't pay market rent, it would have an extra £4K profit. £800 CT. £3200 to disperse as dividends, incurring dividend tax of £240. Total tax hit £1040.

Sure, it isn't a lot. But why should anyone expect me to subsidise MyCo with virtually free premises? After all, the government has decided to stick it to MyCo, so I might as well, too. If it saves a little on taxes, all to the good.

Yes you can do this. But forget any fanciful ideas about Rent a Room or linking to market rent rates.

Have a trawl through the HMRC site for guidance on apportioning of home costs for business use.

Expect to be challenged if you take the pi$$ though.

Most people claim the £4 because it's a "no questions asked" allowance.

[Jessica@WhiteFieldTax]

As was the OP, I was joking.

Well, joking aside, for some people rent will have merit in the post 16/17 world.