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Should this be declared on property pages?

Self employed beautician rents out rooms in her clinic to other clinicians - property income ortrade

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Self employed beautician rents a building.  She operates her trade from one room, and she then rents out the other rooms to other healthcare professionals who pay her a rent.  She is responsibile for the overall building, insurance, utilities, employment of receptionist and provision of central facilities etc ...  she then charges a rent for the other rooms to various other clinicians.

I am assuming the rental income she receives from the other clinicians should be declared on the property pages of her SATR as opposed to "other income" in her self employment pages, along with any direct property costs she pays e.g the rent she pays for the overall building?  If treated as property income, her trade profits are lower and her class 4 nic is lower.

Thank you for reading thus far.

Regards

S

 

Replies (10)

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By IWantToLearn
31st May 2022 20:49

Treat it as property income and save on national insurance.

ITTOIA 2005 s.21 could apply in exceptional circumstances i.e. it is surplus to requirement, but not yours. The rental income and expenses may then be treated as trade.

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By AutumnNights
31st May 2022 21:45

Perfect, many thanks for taking the time to answer, and providing the link - very helpful.

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By Mr_awol
01st Jun 2022 09:47

Is it temporarily surplus business accommodation? The OP says the client deals with employment of receptionist and all central facilities (whatever they may be).

I'm not saying it's not rent (or that it is) but do those central facilities include processing payments, managing bookings, cloakroom area and/or refreshments for clients, etc? Does the paying punter realise it's even separate businesses (how similar are they) or is this held out as a single entity? Is this 'rent' fixed, or a price per treatment?

I am always very careful when dealing with businesses that include physio/massage/osteo services, or a range of beautician services, or tattoo shops for that matter, as they often operate on part rent, part cost share, part commission/subcontracting/etc and over-simplified by the client.

Edit: sorry, having just read the post again i see youre saying that S21 doesnt apply, not that it does. Ignore my first para

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By Michael Davies
01st Jun 2022 10:21

Not sure it is quite that clear cut;to treat it as rental income.Speak to a tax guru and exactly describe the arrangement to them.They can then take a defensible view.That said the income is being declared,and HMRC will have bigger fish to fry.

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By Paul Crowley
01st Jun 2022 11:26

Agree entirely that the tax is being declared and it is just a Class 4 NIC issue
But I would be looking to apportion the costs of rent etc.

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By CJaneH
01st Jun 2022 11:16

If the room rents are treated as rent then electricity, gas, insurance, property maintenance will all need to be apportioned and also the receptionist costs. I would be inclined to treat whole as business.

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By gillybean04
01st Jun 2022 11:18

PIM4300 may be useful.

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By fawltybasil2575
01st Jun 2022 11:51

@ AutumnNights (OP).

(1) One must first establish whether the income is indeed (i) Rents Receivable or alternatively (ii) potentially part of the Self-Employment income. The factors in your initial question (including the reference to receptionist facilities) appear prima facie to support the view that the income is as per (ii).

[Digressing only slightly, the distinction between (i) and (ii) would be especially important if the beautician’s business is (or is required to be) VAT-registered, since of course if the income is per (i), then it is exempt income for VAT purposes, but if it is per (ii) then it is very probably standard-rated income].

Have you seen the documentation re the arrangements between the beautician and the “tenants” ? If so, could you please clarify the TERMS of those arrangements [which are crucial in determining whether the income is per (1)(i) or (1)(ii)]. In this case, there must certainly should be documentation re those arrangements since the beautician herself rents the property from another person (the ultimate landlord), and hence she would have had to ensure that the arrangements with her “tenants” are not in breach of any terms in her lease with that landlord.

(2) There are two important, but different, factors re S.21, ie:-

(a) The entitlement to treat Rental Income as part of the self-employment income is conditional upon complying with all the narrowly defined specific terms (the “temporary” nature is but one, albeit an important one, of those conditions).

(b) If the conditions are fully complied with, then it is optional, not mandatory, to treat the income as part of the self-employment.

3. Following on from (2)(a) above, if indeed (i) there is a right to adopt S.21, then whether one exercises that right is a judgment call which might be affected by several factors [including the National Insurance position; the impact on Loss Reliefs; any differential between the accounting year-end (for the self-employment) and the fiscal year-end (for property income).

Basil.

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Replying to fawltybasil2575:
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By AutumnNights
02nd Jun 2022 13:05

Hi,

Thanks for detailed response. I have gone with trade having reflected on the actual setup she has, and the pointers received.

The provision of rooms and other services have been treated as standard rated vat as you mention, and on balance she is providing more than just a room rental, pointing me more to trade than pure property rental.

Equally, there are a number of costs that would require some form of apportionment should we split the income.

Appreciate everyone's answers - always helpful to receive a number of viewpoints, and I note I hadn't provided enough detail in original question.

Enjoy the holiday everyone

Thanks
S

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By DKB-Sheffield
01st Jun 2022 13:54

I would not be so quick to jump to the immediate suggestion that this is 'property income' without a review of the facts. Basil has very rightly pointed out the considerations, and as he has also pointed out - VAT (which incidentally was my first thought - prior to consideration of property/ trading income) is of great importance.

I'm a bit 'torn' on this as you don't provide some useful information about the sub-tenants. I'm part way between this being rental of treatment rooms (one room rented to one person continually/ on a regular basis), and that of 'chair rent' scenario. How is the rent calculated (£X per week/ day/ hour OR Y% of treatment income)?

Away from the tax side, your client really needs to consider all non-tax matters too! If the beautician is - indeed - renting property, they must consider their responsibilities as a landlord, the tenants' rights, insurance, Business Rates/ VOA, tenancy agreements (with tenants)... and moreover, your client's own tenancy agreement (are they allowed to sublet, are the sublet tenancy agreements in line with the original agreement etc.).

Whilst reporting the income as 'rent' may seem attractive from an NIC perspective... and few questions would likely be asked by HMRC, there are much bigger questions/ issues - both tax-related (VAT) and otherwise. The 'simple' question of how to report is, IMO,perhaps, one of the less concerning ones.

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