Renting out home office to LTD company

[redgiant]

Thanks for all the advice. As Taxless mentioned every case is different so i'll try and get some figures in place to see if I would be better off charging rent for the office (i'm there at least 2 days per week) or by charging more per month to cover other expenses incured that are not covered by the basic £3 a week i'm expensing at the moment - (electricity, gas, water etc.). My accountant should then be able to tell me which one is looked on more favourably by HMRC and which will leave me better off tax wise.

[Taxless]

Various

Regarding the recent posts.

1. On HMRC access, the VATman gets in but you can usually see the taxman elsewhere. In either event, HMRC only get access to business records but if you pay company receipts into a personal bank account or use such an account to pay company expenses then they will get access to that account as well.

The only other way to get access to your private accounts is if they can discredit your business records.

2. "I don't think you need to panic about writing up a contract. If ever you did get an HMRC pull, knock one up retrospectively if you're bothered." I think you will find HMRC take a very dim view of retrospective documents and under the new Business Records Checks you might not get a lot of advance warning of their coming. They also review electronic/computer based records and have some handy equipment to search this.

3. On employees getting paid up to £3 per week, I agree, but you can't just pay that, the guidance states you can do it where, "You reimburse an employee for additional household expenses – such as gas or electricity charges - incurred because they have to work from home....."

If you charge the company rent then you could be better off as you save the CT and don't necessarily have to pay IT on all of the rent as you can claim a proportion of the gas, etc. that you pay anyway against the rent but as always, it has to be reasonable in amount.

Finally, all cases are unique and your accountant should be consulted.

[Clare@InTouch]

As an employee you can be paid up to £3 a week (£156 a year) for use of home, and there is no benefit in kind. HM Revenue & Customs: Homeworking

You can claim more than this if you can justify it, although you need to keep logical calculations that show how you came to your figures. You can include any additional household costs in your calculations - heat, light, water, insurance etc

If you're charging your company rent then the company saves CT, but then you pay income tax on the rental income so you're overall no better off.

As ever, discuss with your accountant who will know your overall position and be able to give specific advice.

[MarillionFan]

Hi

Not sure if I dreamt this but

If you start renting out part of your house to your company, then HMRC have automatic right to enter your business premises and have a nose about (so if you also store paperwork for non company purposes in the same office these are accessible to HMRC).

By not claiming the £75 (or whatever) you do not have to let them in to the house - you can arrange where to meet them to discuss any business you have with them.

As I said I may well have dreamt all this up!

Depends on how your office is set up. I have a seperate office in the house, seperate door, seperate files. All my businesses information reside in here. I work in my office at least two days per week, so the £75 is cheap in my opinion.

I also charge storage on my garage for my other business. £75 per month as well.

I don't think you need to panic about writing up a contract. If ever you did get an HMRC pull, knock one up retrospectively if you're bothered.

[JonSmile]

does this not also allow HMRC access to your house?

Hi

Not sure if I dreamt this but

If you start renting out part of your house to your company, then HMRC have automatic right to enter your business premises and have a nose about (so if you also store paperwork for non company purposes in the same office these are accessible to HMRC).

By not claiming the £75 (or whatever) you do not have to let them in to the house - you can arrange where to meet them to discuss any business you have with them.

As I said I may well have dreamt all this up!

[Taxless]

Eh?

It you have done this on the advice of your accountant and they get it wrong then you can always blame them.

Questions I would ask include, what does the £50 cover, is there anything in writing to prove this, especially if HMRC were to ask the question.

You say you take this as an expense payable directly to you as non-taxable income, but I think you have got the wrong end of the stick here.

The company cannot simply pay you tax free amounts. If it is rental income then it will be shown as such in your personal tax return and then you can claim certian house expenses that you pay personally against that income. She may be suggesting that she can identify expenses of £50 per month to claim, in which case net result is no taxable rental profit, but you would still need to include this in your tax return.

If it is not rental income then what is it designed to cover?

The last bit is the most worrying part, "She thought that this was a sensible figure, and to charge more might attract the attention of HMRC.

I have no idea what this means.

How did she arrive at the decision that this amount was "sensible"?

To claim tax relief against the company's profits, any expense must be [B]wholly and exclusively[B] for business purposes and you require something in writing to detail exactly what the payment is for.

[northernladuk]

If your accountant is advising you to go down this route why aren't they answering this question?

You need a simple rental agreement and can base it on commercial rates in teh area, check estate agents websites.

Avoid exclusive use fr the company to avoid Capital Gains Tax issues i.e. the company gets use of a room between 9.00 & 5.00, Monday to Friday, that sort of thing.

If the rate isn't defendable (e.g. if the £75 in the example weren't representative) HMRC can cause problems.

This was mentioned by you in another thread and I feel pretty uncomfortable with this bearing in mind what my accountant has said and what I have seen in the forums over the years. You explain the situation in 2 lines without mentioning a whole host of complications and limiting factors which, from what I can see means this is unworkable for most in our situations.

[backrubber]

On the advice of my accountant, I charge my Ltd company £50 per month, which I take as an expense payable directly to me as non-taxable income. She thought that this was a sensible figure, and to charge more might attract the attention of HMRC.

[Taxless]

Ask an accountant

If your accountant is advising you to go down this route why aren't they answering this question?

You need a simple rental agreement and can base it on commercial rates in teh area, check estate agents websites.

Avoid exclusive use fr the company to avoid Capital Gains Tax issues i.e. the company gets use of a room between 9.00 & 5.00, Monday to Friday, that sort of thing.

If the rate isn't defendable (e.g. if the £75 in the example weren't representative) HMRC can cause problems.

[northernladuk]

I can't remeber the exact figure but my accoutant recommended something pretty insignificant like £6 a day or there abouts.

Just because something is claimable it doesn't mean you can go gung ho and put anything in. You have to use a bit of common sense. How much time do you spend at your 'home office'? If you are based on client site you can't really claim a home office as a fully leasable site, you are never there!

Also if you do start charging full amount like a lease you need to seriously look in to your home insurance and advise your mortgage people. One of the questions they ask in home insurance is if any of your home is being used for business purposes. I am sure your lender will need to know if you intend to lease some of your home to another company.

I am sure you would also have to demonstrate that this area is not used socially either. If it is your family office or the one you also carry out social duties you are going to be pushing the boundries claiming it solely for business purposes only.

[MarillionFan]

A question for fellow contractors.

How do you handle charging for a home office? I am currently charging back £156 per annum in my expenses but I have been told by my accountant that there is a way of leasing out your office to your LTD company on comparible rent to other offices in the area. Has anyone managed to set this up and what contracts have you used as a template?

Many thanks in advance for your wisdom

I charge a flat rate of £75 per month which I put down as an expense payable directly to myself as non taxable income.

Not sure what others do.

[redgiant]

A question for fellow contractors.

How do you handle charging for a home office? I am currently charging back £156 per annum in my expenses but I have been told by my accountant that there is a way of leasing out your office to your LTD company on comparible rent to other offices in the area. Has anyone managed to set this up and what contracts have you used as a template?

Many thanks in advance for your wisdom