Can anybody kindly run through this for me, please, and how it's applied?
To avoid repetition
which raises a similar question if you mean allowing the company to use the room as it's registered office.
No, thanks for your reply, but I mean in terms of an allowable expense for a sole director running his company from home. A sole trader can claim a use of home allowance, but is it quite the same for a director?
Thanks for your comments
Yes and no
Very basically, there are three options:
a) £3 per week, no questions asked if you are required to work from home
b) Additonal costs incurred for working from home eg. heat and light, but not fixed costs such as council tax
c) Set up licence agreement whereby the company rents space in the drector's home. Can not be backdated, but could be a good plan going forward
Basically to avoid a benefit
in kind the room/rooms are rented to the Company. If it to be at cost the same calculation that you would make for a sole trader suffices. Otherwise there is the £3 per week default figure from HMRC
Use of Home raised to £4/week
The use of home was raised to £4/week.
Figurate is correct
The use of home was raised to £4/week.
With effect from 2012/13
Previous Articles are on a-web
Nichola Ross Martin wrote some great articles previously on a-web on this topic . Detailing what was allowed and the essential differences between limited company and sole trader (as these often get confused).
If you do a search I am sure you will find them.
Don't sell yourself shortTake a look here:
Most of my director/shareholder clients set up a licence agreement (as Andy Partridge said in his option (c), above) and charge their company a rent, based on a "use of home" calculation - Clients get a free template and they plug their info into it. There are only a few that opt for the flat £4/week.
The use of a proper rental agreement between the property owners and the company is the best way forward. There should assuming the rental is reasonable be no difficulty in getting a CT deduction. The property owner is then in receipt of rent so can claim as a deduction any expenditure that is wholly and exclusively incurred in providing the facility to the company.If there is a legitimate property profit then that is taxed as normal but outside PAYE and NIC systems. This is a much better scenario then trying to get an employee status expense deduction. Previous experience is that HMRC does not dispute this set up if expenses are reasonable.
So, following up on the last two comments, can I check three points, please?
1. Is the rent charged as a P&L item in the company accounts, and then as income in the Property page of the director's tax return?
2. Is the 'use of home' calculation one that a sole trader might use? - number of rooms etc.
3. How do you arrive at a 'reasonable rent' for a single room in a 4 bedroomed detached house?!!
In response to PM
2/. It can be done that way
3/. You start from considering what someone unrelated to the company might charge. This might be easily up to £50 per day in my view.
DRMJOB you say "The property
DRMJOB you say "The property owner is then in receipt of rent so can claim as a deduction any expenditure that is wholly and exclusively incurred in providing the facility to the company.If there is a legitimate property profit then that is taxed as normal but outside PAYE and NIC systems."
What if the employee/director does not own the property but rents? Effectively the company is paying him but he will be simply passing the sum received on to the landlord and there is no "property profit", do you think the revenue be likely to question that arrangement. In our circumstance he will be renting a house with one room more than his domestic circumstance requires specifically so that he can work from home on a regular basis.
I see no reason why paying out rent should be a problem indeed it probably makes it easier to calculate the "reasonable rent" the company should pay. The tenant is not getting a tax deduction for the residential rent they pay rather just for the extra work space required.
Rates and CGT (again!)
I think I previously misunderstood the rent to company approach, this has been helpful.
I always assumed it was just transferring the tax from company to individual so was pretty useless, but if I understand the above correctly then you can do the old self-assessment working from home calculation to offset against the rental income. Though I guess really you are saying these are the cost incurred in providing the 'office space'. Does anyone have a nice template rent agreement to use?
The other thing that puts me off is the supposed risk of having to pay rates and CGT, though as far as I can tell this is just a theoretical risk. It's always brought up. Has anyone ever been challenged on either?
CGT on Use of Home as OfficeThe way I understand it, CGT only applies if you have a room that is exclusively used for business purposes. As long as it is used as, for example, a spare bedroom a couple of times a year, CGT does not apply.
Business rates on a home office
There is a very good article on the VOA (Valuation Office) website on this subject. In a nutshell, you should be exempt provided that a) the room is not exclusively used for business, and b) the room was not built or specially adapted for the business (eg for a dentist or osteopath).
This also goes for CGT. Make sure the room has some domestic use.
Best to have a license agreement rather than a formal tenancy. It is much more flexible and can avoid problems with stamp duty that may arise on the notional value of a lease if the rent is very high.
Incidentally, I see no reason why you shouldn't both rent a room to your company AND claim the £4 per week. After all, it is still your home, and the £4 does not have to be in lieu of any particular items of expense, so there is no danger of double-claiming. I've seen nothing official to indicate that it should be either one or the other.
claim the £4 per week
How much time, exactly does this guy have on his hands? Perhaps he should get out more?.
What happens if I don't own the property
What happens if the Director works from home and therefore the Ltd company should pay rent, but the Director does not own the home (his wife does) and he is not named on the mortgage. Can he still charge rent to the Limited Company ?
I should hasten to add that while not named on the mortgage (which his wife pays), the Director pays all other expenses (water, gas, electricity, council tax, etc.) which is more than the mortgage payments.
thanks in advance