Rental agreement for home expenses - limited company

Rental agreement for home expenses - limited...

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1) My client is a small limited company with husband and wife directors.  It is a PR agency, mainly office based with some travel to clients.

Until recently, the company rented an office locally.  Now, to cut costs, the directors are moving the business back to their home, using an office in one of their bedrooms. 

a) Can I just check that I am following the correct procedure in allowing them to claim expenses for working from home.  They wish to claim for mortgage interest, heat and light, and council tax:

i) The company signs a rental agreement with the directors personally, for use of the home office space.  The rent is the amount calculated as the costs incurred for working from home (a suitable proportion of mortgage interest, heat and light and council tax) based on a proportion of rooms in the house and time spent working from home compared to hours in the day).

ii) The rent will be deductible for corporation tax purposes in the company accounts.

iiii) The rental income will be shown on the directors' tax returns as property income, with the offsetting expense being equal to the income received.  All the items they intend to claim for (mortgage interest, heat and light, council tax) are allowable property expenses. 

b) Are there any CGT implications?  Assuming that the home office has another use (I believe it is a spare bedroom as well), will HMRC ignore any office use of this room as and when the main home is sold? If it turns out that there is not a bed in the room (i.e. it really is used just for the office) does that affect the CGT implications?

2) On a similar note, I have another client who has, for years, claimed £70 per quarter working from home expenses which is paid to the sole director by the company.  They have always stated that this amount can be easily justified (and it does appear to be less than the potential costs that could be claimed) if they were to be investigated by HMRC.  But is it incorrect to pay this money to the director directly from the company without having a rental agreement in place?  I have previously advised them of the £3 per week limit imposed by HMRC, but they have always claimed that a higher amount is justifiable and wish to continue with this.

Many thanks for any advice.

Jenny

Replies (1)

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Teignmouth
By Paul Scholes
06th Sep 2011 15:42

Yes

Hi Jenny - yes that all looks OK and, in addition to the items you list they can claim general maintenance and insurance charges as well.  Also, with some of my clients who use their home phone/internet access, ie don't have separate arrangements for the company, they add the relevant proportion of these costs to the rental charge as well.

There is no CGT problem unless the room is used exclusively by the business so some personal use deals with that problem.

Your other client has a problem in that whilst payments for use of home are OK they have to be entered on P11Ds and be justifiable under the employment expenses rules, in particular is it necessary for him/her to work from home and what extra costs are incurred by doing so?

Thanks (1)