Rent a room to LTD company

Rent a room to LTD company

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Please help,

I own a LTD company and i use a room in my mums house to run the business. I was originally told by Tax Assist that she could charge me a rent a room allowance (£4250) then declare it on her SA. But i've gone to submit LTD accounts with another company and they are saying you cant rent a room to a LTD company, is that true?

Replies (49)

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By cheekychappy
05th Jan 2016 10:18

My opinion is that this it is ok for your mother to charge your company rent and to claim rent a room relief.

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By ann domonkos
05th Jan 2016 10:34

Thought only ok for residential purposes

Might be wrong but i think it is only for residential purposes and not commercial as this seems to be.

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By Tim Vane
05th Jan 2016 10:38

A different opinion.

If your mother charges your company rent AND claims rent a room relief then the rent paid by the company is unlikely to be an allowable deduction for tax purposes because the room would be let as residential accommodation and fail W&E. If the room is not a residential room then rent a room cannot be used. See PIM4002.

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By cheekychappy
05th Jan 2016 10:42

The fact that the company pays rent for business use makes it allowable for CT purposes.

The relevant legislation states that an individual has rent-a-room receipts if all the receipts are for the use of furnished accommodation in a residential property. The fact that the room is used for business use does not negate the fact that it is furnished accommodation in a residential property.

I disagree with HMRC's opinion set out in the property income manual.

 

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By Lady Carrera
05th Jan 2016 10:49

@cheekychappy You need to refer to the dictionary definition of accommodation. I agree with Tim that the mother cannot claim rent-a-room relief, if what is being let is being used as an office, rather than as accommodation.

All tax consequences are with the mother though who would have rental income of £4,250 without expenses to match.

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By cheekychappy
05th Jan 2016 10:56

If the mother makes available furnished accommodation, then that is what is being let. If the accommodation happens to have a desk in the corner, and room for a bit of stock, then it’s still furnished accommodation in a residential property.

 

The Oxford Dictionary definitions include:

The provision of a room or lodgings. and

The available space for occupants in a building, vehicle or vessel.

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By Peter The Painter
05th Jan 2016 10:56

HMRC s opinion is that Rent a Room is not due

This is stated at PIM4002. This certainly a possible interpretation of ITTOIA 2005 S786 (1) (a).If your Mum is preparing a self assessment on a different basis to a published HMRC view she would be advised to make a "White Space Disclosure".

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By Lady Carrera
05th Jan 2016 11:04

The available space in a

The available space for occupants in a building (etc) means just that - a 100 square foot office has accommodation for 12 office workers.

That does not make office space accommodation in the context of "use of furnished accommodation", to which only the first (ordinary) definition applies.

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Replying to petestar1969:
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By mick white
07th Jan 2016 07:26

sorry first posting not very clear. { new to this )

Does he mean 100 feet square which is 10,000 square feet. Large wharehouse

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By Wanderer
05th Jan 2016 11:07

When you can’t use the Rent-a-Room Scheme

per HMRC:-

You can’t use the scheme if the accommodation is:

. used as an office or for any business - you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223...

Neither OP nor his limited company appears to be a lodger on the basis of the facts given.

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Replying to Tarma:
By cheekychappy
05th Jan 2016 11:10

.

Wanderer wrote:

per HMRC:-

You can’t use the scheme if the accommodation is:

. used as an office or for any business - you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223...

Neither OP nor his limited company appears to be a lodger on the basis of the facts given.

 

That isn't what the legislation says.

 

Take advice from .Gov at your own risk.

 

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By cheekychappy
05th Jan 2016 11:07

HMRC state that:

“Rent-a-room is aimed at individuals who let furnished residential accommodation in their own homes. You should refuse claims that rent-a-room can apply where rooms in private homes are let as office accommodation”.

 

The legislation only refers to “accommodation”. Regardless of the intention of the legislation, with a broad term and lack of definition within the act, I think this income qualifies for rent-a-room relief.

 

“George Attazder” from an old thread I’ve just dug up seems to be in agreement with me. https://www.accountingweb.co.uk/anyanswers/question/rent-room-relief-bus...

 

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Replying to Tornado:
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By Lady Carrera
05th Jan 2016 11:14

I can confirm

cheekychappy wrote:

“George Attazder” from an old thread I’ve just dug up seems to be in agreement with me. https://www.accountingweb.co.uk/anyanswers/question/rent-room-relief-bus...

 

That George has since changed his mind!

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the sea otter
By memyself-eye
05th Jan 2016 11:09

I have always understood

that rent a room is NOT available to the householder letting to a limited company - certainly not if the company and the owner are the same - imagine if I could rent 'my' office to 'me Ltd' when the allowance increases (to £10k?) next year! Both a CT deduction and a non taxable income.

I think not.

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By cheekychappy
05th Jan 2016 11:15

Haha

But I haven't.

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By ireallyshouldknowthisbut
07th Jan 2016 14:09

.

 

@ OP  If I was putting something on my tax return I would want to see some case law to back me up first. 

It it not uncommon for accountant to disagree with each other, but the general opinion on this follows the advice of your ltd company accountants. 

For your mother to claim it against HMRC's guidance is a somewhat risky approach, but is of course HER issue not yours.

I am of course assuming this is all properly paid as a matter of fact and not just an imagined event put in later. If the rent is properly paid, it should be deductible in your hands, and it would be your mother who had to decide what to do with it on her tax return.

Edited Comment:

 Accountingweb were asked to and have amended the original post in reference to the Tax Assist Franchise, as I connected their unique ability to train accountants in 6 weeks compared to a minimum of 5 years for ICAEW to obtain a practicing certificate. 

http://www.taxassistfranchise.co.uk/our-franchise/faqs

With a suggestion that the advice received by the OP may have been in naivety of HMRC's position, and not through a detailed consideration of the underlying legislation and the nuances of the word "accommodation" discussed in this thread.  This is clearly unfair on my part, indeed I omitted to mention the 43 days follow up training . I withdraw my comment and apologise to Tax Assist and their staff for any offence that may have been caused by any suggestion that they may not be working at a very high level and the same professional standards as other firms with a more traditional approach to training and qualifications. 

 

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By Lady Carrera
05th Jan 2016 11:16

Then good luck at tribunal!

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By Tim Vane
05th Jan 2016 11:21

That's the problem with alter egos. Alter. Egos.

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By cheekychappy
05th Jan 2016 11:28

Tribunal

Are you inferring that someone at HMRC might query it at some point? ;-)

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RLI
By lionofludesch
05th Jan 2016 11:30

I wouldn't do this

Whether it's legal or not, I wouldn't be comfortable with this.   It's not the intention of the legislation and at some stage, it's likely to be challenged.

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Replying to sanjay100:
By cheekychappy
05th Jan 2016 11:33

I would also play it safe

lionofludesch wrote:

Whether it's legal or not, I wouldn't be comfortable with this.   It's not the intention of the legislation and at some stage, it's likely to be challenged.

 

But it did make an interesting debate, didn't it?

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By pacepowerskill
05th Jan 2016 12:06

Pulling my hair out?

It seems like this one splits the professional's down the middle. Not really helpful - its just a case of interpretation. Bit of a gamble really. 

Thanks for the advice, can i ask if there is anyone here that has claimed Rent a Room on a business and had it allowed by HMRC?

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By Lady Carrera
05th Jan 2016 12:19

I do not think that one dissenting view (and the view of a TaxAssist franchisee) constitutes splitting the profession down the middle.

And I am altering my view again Tim. If the rent paid by the company (to the director/shareholder's mother) exceeds a market rent for what is provided, then the excess over a market rent is a distribution (taxable as a dividend on the shareholder), and is not an allowable expense for the company.

Meanwhile Mum gets still taxed on income of £4,250 less actual expenses.

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By pacepowerskill
05th Jan 2016 12:33

I have decided

I guess the over riding factor is HMRC and they seem pretty strict on not allowing it.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4002.htm

I think i will calculate use of home with the actual house bill cost (around 10k - rent, council tax, utilities etc) and split is by rooms (4) and by use (6 days out of 7) 

Giving me an office expense of £2142 

Does that sound reasonable? 

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Replying to I'msorryIhaven'taclue:
By cfield
06th Jan 2016 13:04

Reasonable expenses

pacepowerskill wrote:

I guess the over riding factor is HMRC and they seem pretty strict on not allowing it.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4002.htm

I think i will calculate use of home with the actual house bill cost (around 10k - rent, council tax, utilities etc) and split is by rooms (4) and by use (6 days out of 7) 

Giving me an office expense of £2142 

Does that sound reasonable? 

Not really, unless you use the room say 8 hours a day and it is not used for anything else on the other 16 hours. You can't claim a day's use if you only work there for say 30 minutes. Your £2,142 sounds far too high. Also, if the room is rented, you need the landlord's permission to sub-let.

The company can only claim a tax deduction for a commercial rent. In other words, what would it need to pay for similar facilities on an arms-length basis? That will depend on condition, location and hours required. You can rent offices on a "co-working" basis now with no financial commitment for time/space you don't need. That will be the benchmark. Anything in excess of a reasonable rent for your area will be disallowable.

Worse than that, it could be treated as living accommodation provided by an employer if it really was furnished, so you could end up with a huge benefit-in-kind tax charge. The company would also have to pay employer NI.

Cheekychappy may well be right on his interpretation of the rent-a-room legislation, but is it really worth challenging HMRC on this when they are clearly so dead set against it? I doubt if the mother would want to draw the attention of HMRC to her tax affairs in this way. Even if you had a proper license agreement in place and set the rent low enough to produce no profit for the mother, she could still end up having to register for self-assessment just to declare a small profit if you got your sums wrong.

These sort of arrangements are fine for directors who own the house themselves, but should be avoided where other people are involved, given the tax implications.

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paddle steamer
By DJKL
05th Jan 2016 12:54

Lets all ignore planning, landlord's consent to the sub lease, EPC's , building control etc re complications that might arise renting a part of a residential property solely for use as commercial property (what class?) to a third party.

Lets as one example  just consider the insurance nightmare if there is a claim , "it was a seasonal business, my son just stored his surplus stock of fireworks he had not sold at New Year," etc.

 

 

 

 

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By Lady Carrera
05th Jan 2016 13:04

Police arrested two youths yesterday. One was in possession of some battery acid and the other had a firework. The first was charged, but they let the second one off.

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Replying to kedgley123:
By cfield
07th Jan 2016 19:33

Identity revealed

Lady Carrera wrote:

Police arrested two youths yesterday. One was in possession of some battery acid and the other had a firework. The first was charged, but they let the second one off.

Now we know you really are. Jimmy Tarbuck in disguise!

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By gbuckell
06th Jan 2016 11:03

Late comer

I had a run in with HMRC over this many years ago.

HMRC's view is clearly stated that it does not apply to office accommodation. But in my view the arguments to support that view are very weak - the mere use of the term "office accommodation" indicates that office use is accommodation and the legislation refers only to accommodation.

HMRC also put forward two other arguments

1. When used as an office the room ceases to be part of the home. Take your own views on that nonsense.

2. Pepper v Hart argument that the legislation was never intended to apply to office accommodation. Please point out the Ministerial statement to that effect.

But it is a brave taxpayer that will take HMRC on over this. The amounts involved are way too small to justify the time and cost. I was told that HMRC would pursue the case up to the then House of Lords if necessary.

I applied it when I worked from home some years ago. This is when I had my prolonged argument. HMRC quietly dropped it when I started working away from home so it was never resolved.

I took a case for a client to the old General Commissioners to apply for approval to transfer the case to the Specials which I won despite HMRC opposition. Obviously this did not resolve the real issue. But the client backed off when threatened by HMRC with a full investigation (threat made in the ante-room just prior to the GC meeting).

I would love to re-fight this and would be happy to take it to the FTT for free but I am a mere tax adviser and therefore may struggle with the onward journey to the UTT and beyond (if the taxpayer won at the FTT of course!). Bear in mind also that HMRC can be awarded costs if they ultimately win at any stage beyond the FTT.

This is a classic case of HMRC using bully boy tactics to defend poorly drafted legislation rather than take time to amend the legislation itself.

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By Nigel Wulcko
06th Jan 2016 12:13

Why are we talking about Mum's SA return?

 

Just a minor point, perhaps, but as long as your income from your "lodger" is less than the maximum threshold of £4250, then it does not have to be declared or even mentioned on your SA return. (This is according to .GOV's helpful advice pages, which as previously mentioned, should be read at your own risk).

 

 

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By KH
06th Jan 2016 15:29

A few years back I actually wrote to HMRC asking this question..

The written reply was that rent a room relief was only for "normal" accommodation use, not for business use, and that renting a room in your home to a business of any type would invalidate the rent a room relief ... ....... and I have to say that makes sense to me.

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Replying to iain.mcgregor:
By SteveHa
06th Jan 2016 16:10

HMRC authority?

KH wrote:

The written reply was that rent a room relief was only for "normal" accommodation use, not for business use, and that renting a room in your home to a business of any type would invalidate the rent a room relief ... ....... and I have to say that makes sense to me.

Oh, well that proves it then. Would you mind writing to HMRC asking what the legal requirement to complete a return is, too, please.

I'm sorry, HMRC's view and the legislation are often at odds with each other.

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Replying to Syd:
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By KH
06th Jan 2016 17:09

Yes, I agree, but...

Yes, I agree, SteLacca, but for the sake of a few bob, there are worse things you can do than sometimes take HMRC's word for it ... now if the issue were over a large amount, then it might be worthwhile fighting, but I reckon there are much better things to do when the odds are stacked against you and the gain is so little.

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By Lady Carrera
06th Jan 2016 17:06

Whilst not indicating any change of view from my part. Those that are of the view that accommodation can include office accommodation, may find the wording of ITEPA 2003, section 97 interesting.

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Replying to Youareatit:
By cfield
06th Jan 2016 17:41

Already mentioned

Lady Carrera wrote:

Whilst not indicating any change of view from my part. Those that are of the view that accommodation can include office accommodation, may find the wording of ITEPA 2003, section 97 interesting.

You are referring to accommodation provided by the employer, which has already been mentioned (in my last post). Sorry Portia (ahem, I mean lady Carerra), you've been beaten to it on that one.

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By Lady Carrera
06th Jan 2016 17:49

Not beaten to anything at all.

Firstly I had not read your post, because I find that you generally spout complete and utter b*llocks. On this occasion though, I do find myself agreeing with your first two paragraphs and your last two paragraphs.

The paragraph that I do still think is complete and utter b*llocks is paragraph 3 where you say there can be a living accommodation benefit.

There is no living accommodation being provided.

The nature of the argument in the thread is whether "accommodation" just means living accommodation or can mean, for example, office accommodation.

I simply point those who are of the latter view to the fact that, in other contexts, when the legislation means living accommodation it says so.

That has nothing do with the nonsense point you have made about living accommodation in your paragraph three.

All, of course, meant with the greatest respect.

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Replying to SXGuy:
By cfield
06th Jan 2016 19:13

So it IS you!

Lady Carrera wrote:

Not beaten to anything at all.

Firstly I had not read your post, because I find that you generally spout complete and utter b*llocks.

Ha, ha, now we really do know you're the inimitable PNL. What happened Portia? Did AWeb finally kick you out for being so rude? Why have you changed your persona?

You know, you want to be careful making comments like that. They could be actionable. Do you really want to go through my 847 posts over the last 6 years explaining to lawyers what you consider to be b*llocks? Not as many posts as you I admit, but then again I've got a business to run and Tax Cafe books to write.

About my 3rd para. I did use the word "could" not "would" and even emphasised it in italics. I agree, it's unlikely they could invoke section 97, but the possibility does exist, say if the employer was renting the whole house from a third party and the director lived there too. And if you think it's such b*llocks, why did you draw our attention to section 97 yourself?

By the way, you didn't come back to me on that thread about PPR relief for a woman who spent 11 years in South Africa. Does that mean I won the argument? I'm surprised you missed the fact the house was still her main residence under D21 after she returned to the UK. I always thought of you as a PPR guru, but I shall have to revise my opinion.

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By Lady Carrera
06th Jan 2016 18:15

Also on the Pepper v Hart and Hansard issue. See http://www.taxation.co.uk/taxation/articles/2009/09/16/19357/office-rent

Note, for information, the Hansard references in the "a closer look" section.

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By mick white
07th Jan 2016 07:20

Square feet or feet square

100 square feet is only 10 square bit small for 12 workers

 

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By gbuckell
07th Jan 2016 10:52

Hansard

Ministerial statements suggest that the relief was aimed at providing residential accommodation.

Two points:

1. To invoke Hansard the legislation must be ambiguous. I would argue that by failing to qualify to word accommodation the legislation is not ambiguous and does allow office accommodation. As has been noted, the reference in ITEPA 2003 s97 supports this view by applying the word living.

2. If point 1 fails then does Hansard provide an answer? Nowhere does a minister say that office accommodation is excluded. Can one read silence on a point as a negative? In my view this would be extending the principle in Pepper v Hart and could only be done by the Supreme Court.

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Replying to sanjay100:
By cfield
07th Jan 2016 11:04

Ministerial statements

gbuckell wrote:

Ministerial statements suggest that the relief was aimed at providing residential accommodation.

Does it matter what a Minister says or thinks after legislation has already been passed? They can't change or even clarify the law once it's been enacted any more than an author can change a story he or she's written after it's already been published (unless you're J K Rowling).

It is for the judiciary to decide what Parliament intended if legislation is unclear, based on what was in their collective minds at the time, and that should not take into account statements made by individual Parliamentarians afterwards.

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By Justin Bryant
07th Jan 2016 11:31

I cannot see anything wrong

In gbuckells' above analysis and the point it is certainly not unarguable.

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By Lady Carrera
07th Jan 2016 13:45

@ cfield The reason I did not make any further responses on your PPR point was because you persisted with your nonsense. I was most certainly not agreeing with you.

I shall now respond to put you straight, and you can read it when you are not busy writing for the Ladybird of tax publications.

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By cfield
07th Jan 2016 16:34

Ladybird better than Lady C

Well thank you so much for that latest remark Portia. I have read your helpful advice and responded accordingly on the thread concerned. For those wondering what all the fuss is about, you can follow the argument here:

https://www.accountingweb.co.uk/anyanswers/question/ppr-allowable-absences

The Ladybird of tax publications, eh. I'll have to tell the editor that. He'll probably treat it as a compliment. After all, Ladybird sold millions of books, didn't they. I presume you meant it in a more disparaging way, and probably think of Tax Cafe as being lightweight somehow, no doubt because their books are written in plain English for ordinary people.

Well come on Portia, or Lady C, or whatever your real name is. How many books and articles have you written? Can you point us towards something in Taxation, Tolleys, Butterworths, or even Tax Tips and Advice? Let's find out who you really are.

 

 

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Replying to Refs1:
By cfield
07th Jan 2016 19:40

None yet

Damn, clicked Reply instead of Quote. I'll save this for another post later.

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Francois
By Francois Badenhorst
08th Jan 2016 09:50

Keep the thread on track please

Address the OP's question, please. This thread is veering off course.

Thanks.

Francois (moderator)

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By Tim Vane
08th Jan 2016 09:56

@Francois - I suspect the OP is long gone. He was in the category of people who thinks that the letters L, T and D are an acronym for something, so he probably won't be back for 12 months.

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Replying to I'msorryIhaven'taclue:
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By pacepowerskill
12th Jan 2016 14:29

Back in a year...

Tim Vane wrote:

@Francois - I suspect the OP is long gone. He was in the category of people who thinks that the letters L, T and D are an acronym for something, so he probably won't be back for 12 months.

Love Thy Director? 

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By Marion Hayes
12th Jan 2016 14:51

FYI

Whilst I cannot speak to the rewritten legislation, sadly I remember well the introduction of rent-a-room relief, the subsequent light bulb moment where the profession told the world through a taxation comment/article of the possibility of renting as an office, and the amendment made to legislation at the next opportunity to prevent it.

As tax counsel once told me you were never sure a strategy worked till it was blocked we did accept the end result was only allowable for residential lettings

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