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Rental agent's fees

Rental agent's fees

Hi there,

I'll try to keep this brief to save you time. Can I confirm that tax on rental agent's fees is an allowable expense?

Client is renting his flat and using his bedroom as an office from 9 - 5pm. He rented this flat from an agent to whom he had paid agent fees. Is this fees deductible?

Cheers, guys.

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08th Mar 2016 01:44

Tax?

What tax are you talking about?

Does the client have a business?

Some of the fees are deductible.

What is your relationship with the client? Are you his accountant?

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08th Mar 2016 02:10

Thought this would be simple. Perhaps I'm not clear.

Let's say you are sole trading as an IT contractor.

You wake up and work from 9-5 M-F each week.

You work in your bedroom, in a flat you've been renting a few months ago.

At that time, you paid an agent, say, £500 as commission for getting you this flat to stay in.

Qn: Can you deduct a proportion of this £500 as an allowable expense? I trust this should be enough info. :) Thanks

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08th Mar 2016 02:29

What happened?

What happened to the tax in the original question?

So the IT contractor paid £500 to a rental agent for finding them a flat to live in. That is a personal expense.

They start using the bedroom to work in. They can claim rent for the proportion of time they spent in the bedroom working.

 

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08th Mar 2016 08:19

Hi Peter,

Thank you for coming back. That is correct - he paid the £500 to the agent for that purpose. I know they can claim a proportion of monthly rentals but not any part of the £500? I had a feeling but just wasn't sure.

On the proportion, I am calculating it as £RENT x 30% x 8hrs/24hrs. Is using 24hrs correct or should it being waking hours ie. 8hrs/15hrs?

 

Cheers

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08th Mar 2016 08:25

Use of the room

£RENT x Use of room for business / Use of room in total

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08th Mar 2016 09:56

Peter, isn't time (in hours) also part of the function?

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08th Mar 2016 10:16

Yes

fingerstyle wrote:
Peter, isn't time (in hours) also part of the function?

I would have thought that the Use was time. What did you understand it as?

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08th Mar 2016 12:58

Space.

So in other words, if I pay £1000 for 1 month's rent, allowable rent as an expense is calculated as follows:

 

a) Space used

Flat is 1000 sq ft

Bedroom is 300 sq ft

Space used for home office is therefore around 33%

 

b) Time of use

24 hours in a day

I sleep, say 9 hours, so that gives 15 waking hours

Of the 15hrs, I use 8 hrs for work, 7 hrs for leisure or not used at all (e.g. out of the house or watching TV, etc)

Time use is therefore 8/15 = 53%

or should I be using 24 hours as the base? i.e. 8/24 = 33%

 

Allowable rent expense is therefore £1000 x 33% x 53% = £174.90 per month OR £1000 x 33% x 33% = £108.90

Which one? Did I get it correctly?

Thank you

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08th Mar 2016 13:10

My calculation

Space used is exactly 30%.

If you are in the bedroom for 24 hours then 8 of the 24 hours is used for business.

Calculation is £1,000 x 0.3 x 8/24 = £100 per month.

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08th Mar 2016 13:15

Thanks, Peter. I understand the 8/24 used. I thought I saw somewhere that it was over waking hours instead. Anyway, that's fine.

Not too sure about the 30% thought - I know it's a small difference but why use 30% instead of 33% calculated as 300/1000 = 33%?

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08th Mar 2016 13:34

Check

fingerstyle wrote:

Thanks, Peter. I understand the 8/24 used. I thought I saw somewhere that it was over waking hours instead. Anyway, that's fine.

Not too sure about the 30% thought - I know it's a small difference but why use 30% instead of 33% calculated as 300/1000 = 33%?

Check your calculation.

I make 300/1000 = 30%

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08th Mar 2016 14:15

What a blind idiot I am today. Thanks for pointing that out, Peter and my apologies.

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08th Mar 2016 15:38

base

I would use 17 hrs as the base (8/17).

Being - business hours (8) / total hours used (8 business and 9 in bed) as the business room is his bedroom.

I think HMRC use both 24 and 'total hours used' as a base in different examples, as either way seems fine, use the one that is best for the client (probably not 24 unless the room is used 24 hours a day)

Waking hours probably applied to business use of eg a sitting room with constant use except when sleeping - (the opposite of bedroom use).

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08th Mar 2016 15:47

The HMRC guidance uses 24 hours as a base for invariable expenses and the total time in the room for variable expenses, so 8/24 for rent, 8/17 for heat & light. In practice you could use either or an average of the two across everything, I doubt the difference will be significant and so long as there's a reasonable basis for the calculation I doubt anyone will quibble.

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08th Mar 2016 17:13

night hours

That's what I thought originally, but BIM47825 Example 6 shows Gordon using his room for 8 business hours and 2 domestic hours daily.

He apportions his fixed costs by time 8/10 based on total usage rather than 24 hours.

I now use this method for fixed costs, as it gives a better result and is approved as reasonable in the BIM.

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08th Mar 2016 21:46

Looks like it's permissible to use a lower base - better result indeed. :) Thanks, sunshine.

Thank you, all, for writing something here.

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