Looking at 2016/17 client has one-man-band company earning around £20k profits and not paying him anything.
He has employment income elsewhere of around £70k.
The Use of Home as office claim (modest office and modest use) is currently around £500 in the accounts (at this level just covering personal costs) but we're considering increasing to say £3,000 - which is a reasonable market rate on which the profit personally will be £2,500. The idea being that he pays personal tax of 40% = £1,000 but company saves additional corp tax of 20% £500 (not £3,000 x 20% because of course the company already "pays" Use of Home of £500). Therefore he takes home £1,500 + company retains £500. Effective tax rate of 20% rather than 32.5% on HR dividends.
However I think the eventual saving will be even less than 12.5% because the £500 retained will eventually need withdrawing from the company! Anyway, for now my questions are:
1. Does it need to be a market-rate rent or could he personally charge his company £10-£20k rent?
2. Will the measure to restrict finance costs of rented properties to BR tax relief effect my client personally being that:
a) The mortgage interest is a small proportion of the costs claimed in Use of Home as office
b) The measure does not affect individuals renting out commercial property - this being a residential property for commercial use?
I realise that these savings aren't great and he will consider retaining profits and looking at ER on future disposal, also making pension contributions from the company. But for now I'd like to check on these issues should we go down the route of extracting a little via Use of Home as Office. Thanks.