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Director charging rent to company for use of home

Director charging rent to company for use of home

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If a husband and wife trading through a limited company operate their business from their own home, is it reasonable for them to charge the company a rent?

It would be relatively easy to apportion the domestic costs (mortgage interest, council tax, water, light and heat, insurance etc) and then that part of the costs relating to the company's use of the home could be charged by the directors to the company as rent?

It would appear that the rent the company would pay would be wholly and exclusively incurred for the purposes of the trade. 

The income received by the directors would only cover their costs and so this would seem to leave no personal income tax liability.

It would be ensured that no part of their home would be used exclusively for company business and so this would seem to get around any CGT issues whereby private residence relief may need to be restricted.

Does all of this seem to be reasonable?

With the reduction in the dividend nil rate band, it would be good to have as many as possible options for the extraction of profits.

Many thanks

Replies (18)

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By ATTServices
31st Jan 2018 15:43

You can charge the company rent for the use of the home. A formal written rental agreement should be provided and signed by both parties.

A calculation will need to be prepared, based on utilisation of the space. You should consider the Sqft usage (excluding the kitchen/bathrooms) of the property and apportion based on the number of hours it is used. Do not account for mortgage interest on the property.

The rent falls outside of the rent-a-room relief and would need to be declared on their self-assessment.

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Replying to ATTServices:
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By atleastisoundknowledgable...
31st Jan 2018 18:11

ATTServices wrote:
Do not account for mortgage interest on the property.

Why not?

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Replying to atleastisoundknowledgable...:
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By ATTServices
31st Jan 2018 18:29

I should have been more clear, you should be using a market rental value for the property.

Using mortgage interest as an expense line on the calculation will only complicate matters if HMRC queried the rental charge. It's not an incidental cost of running the company from home and will vary considerably
in value dependent on when the mortgage began.

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Replying to ATTServices:
Portia profile image
By Portia Nina Levin
31st Jan 2018 18:42

So?

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Replying to ATTServices:
By johngroganjga
31st Jan 2018 21:29

ATTServices wrote:

A formal written rental agreement should be provided and signed by both parties.

What on earth would be the point of such a document?

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Replying to johngroganjga:
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By ATTServices
01st Feb 2018 09:06

Additional evidence of an agreement in place for the use of space and restrictions applied to the usage.

What on earth would be the point of your reply?

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By nick farrow
31st Jan 2018 19:07

the rent charged to the company should be no more than commercial the expenses claimed by the directors should be actual adjusted for time and space

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By Matrix
31st Jan 2018 19:33

Yes you can suggest it to clients on the basis they provide information on a timely basis, otherwise it is just the usual use of home if they can't do this.

In practice I find I have the salary and dividends for the tax return but then it takes hundreds of emails and chasing for the client to dig out the actual expenses to do the rental computation so you are sitting on the tax return for months.

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By Adam12345
31st Jan 2018 19:33

stephenpotter wrote:

It would be ensured that no part of their home would be used exclusively for company business and so this would seem to get around any CGT issues whereby private residence relief may need to be restricted.

This is the sticking point for me... you say it will not be used exclusively for business purposes to ensure PPR relief is available. What about a benefit in kind on the employees?

You're blurring the lines between a separate corporate entity and the employees/directors of the company in my opinion.

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By SteLacca
31st Jan 2018 22:02

I have to say, with the reducing rate of CT (and so the corresponding reducing saving), and the personal liability for rent, I'm starting to wonder if it's at all efficient.

EDIT: This on the basis that actual allowable costs for the directors is not going to be huge.

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By Briar
31st Jan 2018 23:25

Do HMRC care if the charge in the company accounts is reasonable and nothing appears in the personal tax return! I've never had a query.

Waiting for the purists!

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Replying to Briar:
Me
By John Charman
01st Feb 2018 05:09

Briar wrote:

Do HMRC care if the charge in the company accounts is reasonable and nothing appears in the personal tax return! I've never had a query.

Waiting for the purists!

If you're going down the 'use of home as office route' then I think this is fine, most of my claims are £4-£5 per week (although in some cases there are special circunstances).

It's when the word 'rent' is used, all of a sudden it seems like a lot more, maybe £250 per month plus (for example).

If you were to put through £250 per month rent in the company accounts and not declaring it on the directors tax return I'd say that is a very aggressive strategy at the least!!

Best of luck if you're getting away with it though!!

John

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Replying to John Charman:
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By ATTServices
01st Feb 2018 10:30

I have a client who's previous accountant didn't put rental income of £3k per annum, relating to the rental of one room to his company, on the SA tax return of the client for several years.

This was all discovered after a HMRC enquiry due to, what we presumed, was a mismatch of dividends on one of his prior returns.

He had to pay over £3k in tax and interest charges for a three year period. Could have avoided this if it was declared and appropriate expenses deducted.

Is it likely you'll get caught? Probably not... Can it happen? Yes.

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Replying to Briar:
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By Tax Dragon
01st Feb 2018 10:06

Briar wrote:

Do HMRC care...


Tell them that's what you do and ask them if they care. It would be helpful it you'd post the reply you get.
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Teignmouth
By Paul Scholes
01st Feb 2018 12:43

Been doing this with most of my directors for 10-15 years but, like others, only if it's worth the hassle over the £18pm general claim.

In year one I give them links to HMRC's manual for specimen use of home situations in self employed cases and details of expenses that can be claimed and help them with the calculations. Thereafter they do them each year or, if things are stable, every 2-3 years.

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By Mr Trellis of N Wales
01st Feb 2018 18:14

The OP's objective, I assume, to be one up on HMRC.

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Hallerud at Easter
By DJKL
01st Feb 2018 21:34

I certainly do not bother with my own company, life is too short and in the time that would be taken faffing about I could have earned far more in fees than any tax saving.

I say this as I sit here in my tiny room at home (I came upstairs to move the furniture around but got distracted on here), post January it does not look very tidy but I am likely kidding myself that a different arrangement will be any more efficient; there is only so many ways one can perm vast amounts of paper into a 8ft x 9ft room.

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By agburton
23rd Aug 2019 11:12

I know this is a bit old now, but just to add that if the tiny room has a commercial rent value of under £1,000 then it would be covered on the Directors SA by the Trading Allowance, and no cost calculation needed, I think.

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