A limited company client (sole director/shareholder) works from home. I am thinking of advising him to enter into a rental agreement between himself and the company so that a proprotion of his mortgage interest can be offset. This is something that has been suggested several times on AWeb.
So far, so good. However, he does not have a study or spare bedroom that he uses for the work. It is a 3 bedroom house. He just uses the kitchen or living room when family circumstances permit. Does this affect the rental that can be charged? In most homes like this where there is a rental agreement, I would normally claim roughly say 1/6th of the costs and therefore the rent would be at around this level.
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Go ahead
Can't see any problem with that and it is what I would do, use 1/6th. The company is renting some space, doesn't necessarily have to be a confined space or specific space. One of my clients who works from 50% of his open plan lounge/diner recently had a tax enquiry and HMRC requested calculations, I provided them on the basis of a percentage of home costs and a copy of the signed licence agreement, it was fully accepted.
Do you have a licence agreement? PM if you don't and I'll send you the one I use.
PS Even when the use of home calculation comes out seemingly high, I just apply a reasonableness test to it, eg look at typical cost of renting a local serviced office (let's say £500 per month for a Regus shoebox), then the claim seems entirely reasonable!
Hi Sheepy306
A client of mine is in a similar situation and during a recent VAT inspection it was hinted by HMRC that a PAYE inspection is also recommended. I wondered if you would still have the licence agreement available to share please? I have seareched online and on AW where many posts and examples are from 2011. I wondered if they would still be valid now. Thanks in advance VP
Agree with Sheepy306
All my directors have been doing this for years and the only risk I faced a year ago is where one mentioned he'd converted a bedroom to be used solely for the business (he now doesn't lock the door and the kids have a box of toys and a games monitor in there!).
No two businesses or homes are the same and so what I do is refer them first to the manual dealing with examples of use of home calculations asking them to pick the closest to their working arrangements, then to the page dealing with the specific expenses that can be claimed for them to get the costs that can be claimed and then they do the calculations, with a bit of help from me.
The rental agreement is essential to tie this all together.
Hi I have just been reading this thread. It surprises me that this is not a standard agreement with Limited Companies.
Would it be possible for someone to send me a copy it would be very grateful.
Also I have client that I wish to use to provide with such an agreement who has the last four years of his accounts under enquiry.
If he were to sign agreement today could the terms cover the years under enquiry and as such a claim be made for prior years rent