B&B Self Employment but using rent a room scheme

If using the rent a room scheme, where do you record B&B income?

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Evening All,

Hopefully we're almost all over the line for 22/23 tax returns!  

I have a new B&B client, and in previous years they have compelted self employed pages and calculated traditional accounts.

However this year, it will be better for them if they take advantage of the rent a room scheme, so they will get the £7,500 rent a room allowance in the property pages.

I had initially planned to record the B&B income in the property pages, along with the rent a room allowance.  In this year, that makes sense to me.

I have become confused on two points though.  They have b/f tax lossses in their self employment (from before they joined us), and I would like to utilise these losses, and that's where the confusion kicks in.

client has b/f self employed losses, but in the current year won't have any transactions in self employed pages, and will have a profit in the property pages.  How do I utilise these self employed loss b/f?

Following on from this then is the 2nd area of confusion.  If client has elected to treat B&B as self employment last year, and decides to use the rent a room scheme this year, if income is recorded in property pages, by default we would have no self employment transactions.  Do we leave the self employment pages in the return, but zero transactions, and leave the b/f losses for a later year?

With the rent a room scheme, client can chop and change each year whether he wants to prepare traditional accounts to calculate his taxable profits or take advantage of rent a room scheme.  

I am concluding that we retain the self employment pages in teh return each year, and in years where we elect to operate the rent a room scheme, there will be zero transactions in the self emploment pages, and B&B revenue and rent a room allowance both recorded in property pages.  In years where client elects to proper traditional accounts and calculate his taxable profit there will be both revenue and costs in the self employment pages, and no transactions in the property pages.  Does this sound right?

It seems inconsistent to me, albeit tax due will be correct.

Any thoughts please

Thanks

Replies (6)

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By David Ex
28th Jan 2024 18:52

No idea about the losses point though maybe the description below of RAR disclosure leads to the conclusion they are carried forward unutilised?

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121560

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Replying to David Ex:
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By David Ex
28th Jan 2024 20:30

David Ex wrote:

No idea about the losses point though maybe the description below of RAR disclosure leads to the conclusion they are carried forward unutilised?

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121560

On reflection, right link but I should have read it.

Thanks (1)
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By Tax Dragon
28th Jan 2024 20:11

I encourage you to read the rent-a-room legislation.

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Replying to Tax Dragon:
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By Tax Dragon
28th Jan 2024 20:12

TD I encourage you to look at other responses before posting your own.

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Replying to Tax Dragon:
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By FactChecker
28th Jan 2024 20:25

Those fishhooks get everywhere - and it's easy to catch yourself if you're in a rush!

Thanks (2)
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By richard thomas
29th Jan 2024 21:49

The link David Ex has provided tells you that rent-a-room (RAR) relief is not restricted to businesses the profits of which (apart from RAR) are charged under Part 3 ITTOIA (property business). Tax Dragon could have been more specific and pointed you to eg s 786(1)(d) ITTOIA to reinforce what BIM says and to show all of us that sometimes HMRC’s manuals reflect the law.

So all you need to do is follow the guidance in SAM 121560 and complete the so called “Self Employment” pages as shown there. Losses b/f will skip a year where there are no profits of a trade.

Once you’ve done the return, you and the rest of AWeb can contemplate the Revenue’s practice of allowing B&Bs (and hotels for that matter) to be taxed (I nearly just added Case I, thus showing my age) under Part 2 ITTOIA (rather than Part 3) in the face of the clear prohibition of that in s 4 ITTOIA, at least in relation to the accommodation element.

The trade/property income interface has been the subject of all sorts of confusion in the minds of those in the Revenue since at least the Salisbury House case (where the minds of the Judicial Committee were also somewhat confused).

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