Reply to: Home Office Rental Agreement

[d000hg]

Is it worth it if you are going to have to delicate rental income on it personally?

Not thinking of charging your limited like 10k a year or something!!?

I think it's worth it in some cases, if you work 100% from home with a proper dedicated office. For instance if you had a 2-room penthouse apartment in London and used one room as your office, that's 50% of floorspace.
If you own a big cheap property in the north, the % is quite low.

I used to expense £100pcm but changed it to £50 simply so it is more obviously inside any kind of calculations someone might want to do.

[bartman]

An often forgotten element of this is the personal tax return. If you do decide to proceed with this, you effectively become a landlord to your company with income that must be declared on your personal tax return. Expenses incurred in providing your company with a home office can be offset against the income. To keep things simple, I would suggest charging your company based on actual cost - on your personal tax return the two net each other off giving rise to no increase in personal tax payable. There may of course be reasons for charging your company a commercial rate of rent, the merits of which should be discussed with your accountant.

Thanks Greg. I think that clarifies for me - I can either claim expenses incurred or a fair commercial rate, both are reasonable although the former is more straightforward. Will discuss with my accountant both options, to see if either make sense for me. Thanks very much for the clarification!

[Greg@CapitalCity]

I'm now not sure whether the amount of rental should be based on something comparable using local serviced offices as a guideline (i.e. similar square footage, location, facilities) or alternatively based directly on a percentage of household bills.

Maybe I have misunderstood and have been thinking based on the former not the latter. From the above posts it sounds as if maybe the rental amount should be based on the latter (and should just not exceed commercial rates). The difference is quite a lot - and in fact if the latter, then yes it's probably not worthwhile.

An often forgotten element of this is the personal tax return. If you do decide to proceed with this, you effectively become a landlord to your company with income that must be declared on your personal tax return. Expenses incurred in providing your company with a home office can be offset against the income. To keep things simple, I would suggest charging your company based on actual cost - on your personal tax return the two net each other off giving rise to no increase in personal tax payable. There may of course be reasons for charging your company a commercial rate of rent, the merits of which should be discussed with your accountant.

[stek]

Here's a link for rental income based on expenses in case it's useful to anyone.

...it does sound like £4/wk is the option. A Mc'D a week.

Not here in Dublin it isn't, even Mickey D's are fuk'n dear! It's €2 for a cheapo double cheeseburger that's about £1.29 in UK. €5.70 for a pint of crappy Heineken!

[bartman]

Here's a link for rental agreement based on expenses in case it's useful to anyone.

Given that I don't have a huge office in a tiny flat, it does sound like £4/wk is the option. A Mc'D a week.

[bartman]

Taking a cautious approach to this I would find it difficult to justify comparing my office to a purpose built managed service office. I would have thought a comparable guide would be an old house that has been converted in to an office such as a flat above a shop or something which would be considerably different rates. As lovely as your office might be I don't see how it can be compared to a Regus type place in both setup and cost.

Yes true.

[northernladuk]

Thanks for the added information.

I'm now not sure whether the amount of rental should be based on something comparable using local serviced offices as a guideline (i.e. similar square footage, location, facilities) or alternatively based directly on a percentage of household bills.

Maybe I have misunderstood and have been thinking based on the former not the latter. From the above posts it sounds as if maybe the rental amount should be based on the latter (and should just not exceed commercial rates). The difference is quite a lot - and in fact if the latter, then yes it's probably not worthwhile.

Taking a cautious approach to this I would find it difficult to justify comparing my office to a purpose built managed service office. I would have thought a comparable guide would be an old house that has been converted in to an office such as a flat above a shop or something which would be considerably different rates. As lovely as your office might be I don't see how it can be compared to a Regus type place in both setup and cost.

[northernladuk]

We discussed this at my current client a while back and one of the lady's was having an extension built on the house that included a downstairs office. She was adamant she could claim the entire cost of the extension through the company. The fact there was a bedroom above it meant nothing to her. We pointed out that would mean LTD owned part of the house, everything else mentioned above and the need for common sense etc and she wasn't having any of it. Accountant said yes so she did. The frustration of trying to talk to someone who is so bloody minded and cannot see the wood for the trees was unbelievable and that wasn't just me saying that.

[bartman]

Thanks for the added information.

I'm now not sure whether the amount of rental should be based on something comparable using local serviced offices as a guideline (i.e. similar square footage, location, facilities) or alternatively based directly on a percentage of household bills.

Maybe I have misunderstood and have been thinking based on the former not the latter. From the above posts it sounds as if maybe the rental amount should be based on the latter (and should just not exceed commercial rates). The difference is quite a lot - and in fact if the latter, then yes it's probably not worthwhile.

[Nixon Williams]

Is it worth it if you are going to have to delicate rental income on it personally?

Not thinking of charging your limited like 10k a year or something!!?

The sums are likley to be small, it might be that the property is jointly owned, so only 50% would be declared on each tax return.

In my view it probably is too much bother to be worth doing, but some like to know what is available!

[stek]

Home Office Rental Agreement

Is it worth it if you are going to have to delicate rental income on it personally?

Not thinking of charging your limited like 10k a year or something!!?

[Nixon Williams]

If you trade through a limited company it is possible that you can claim for more than £208 per annum, however, you will need to set up a rental agreement between you and your company. Failure to have a formal agreement could lead HMRC to classify the rent as extra salary with the Tax/NIC consequences of this.

Rental payments can be beneficial due to your company being able to deduct rental payments when calculating the Corporation Tax due on the profits; however, there are other areas to consider before doing this:

Factors to consider are:

1. Rental levels agreed must not exceed a commercial ‘arm’s length’ amount;
2. You should have a separate room to dedicate as an office;
3. You should have a formal rental agreement in place;
4. Consider having independent rental valuations on a regular basis;
5. You would need to declare any rental income on your personal tax return each year and any profit on this (income after allowable expenses) is taxable as income (this may reduce the tax efficiency of this option);
6. How this affects your Private Residence Relief (explained below).

You may be able to obtain a guide of local rents from local serviced offices, these tend to be based on the space and include a charge for rates, insurance etc. to back up point 1 above.

Private Residence Relief

Caution needs to be taken to ensure that you do not lose your Private Residence Relief (PRR) when you come to dispose of your home. To protect your PRR it is worth stating in the agreement that the room is only let to the company for a designated period each week/month, say Monday to Friday 9am to 5pm but HMRC could still argue that the office is used for business purposes and thus disallow part of the PRR claim when selling your home.

Having said all of the above, this is generally not something we would suggest, but we would recommend that the £208 per annum or £18 per month (if claimed monthly) is claimed.

[jamesbrown]

Though it was £4/week!

That's the standard allowance, no questions asked. It's rarely worthwhile to factor actual costs, even if you work 100% from home (as do I). Say your rent/bills are £6000pa and you have an office used for a third of the day that occupies 10% of the floor space. You're talking about £6000*1/10*1/3=£200 versus £208 no questions asked. Perhaps if you have a massive office in a tiny flat, but I can see that conversation If it's a dedicated workspace, the other thing to consider is business rates and capital gains on sale.

[northernladuk]

Though it was £4/week!

That is for our general use when office work is a bit adhoc. Keeps HMRC happy. I think the poster indicates he works full time from home so his office is his only workplace all day so a lot more justification to be able claim a percentage of bills and floor space.

We can also claim this if we want but it's not going to sit well with HMIT when the client then says you are on his site 4-5 days a week.

[stek]

Home Office Rental Agreement

Though it was £4/week!