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Use of Home for Small Limited Companies

Use of Home for Small Limited Companies

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I'm just looking on some advice and thoughts from others who deal with similar sort of clients. Any advice would be gratefully received!

We have a few small limited companies which are owner managed. The business is operated from the director's personal home. The dircetor states that approx 25% of the heat and light is for business use (heating the office room during the week) and 75% of the phone is for business (majority of calls are for business but there is no itemised billing). Both the heat & light and the phone bill are in the director's personal name.

I realise that if the company pays for the bill then there would be a BIK as the phone remains the privtae expense of the director. However can the director charge the company for use of home as office at a rate above the scale payments based on the above apportionment?

What would you advise the client so that P11D isn't a problem but the company still pays for some of the costs?

Replies (10)

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By janitia
27th Jun 2013 18:23

use of home

The best way is to set up a rental agreement between the owner and the limited company. The rental will be the same as the costs so there will be no taxable benefit. 

Add together all the costs i.e. mortgage interest, council tax, utilities, insurance and broadband. 

Calculate cost per room and divided by the amount of time the room is used as an office.

You should be able to find a rental agreement form on the internet.

Put the rent received on the self assessment in the appropriate section.

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By frustratedwithhmrc
27th Jun 2013 20:20

Which scale rate are you referring to?

"However can the director charge the company for use of home as office at a rate above the scale payments based on the above apportionment?"

Which scale rate are you referring to? the 4-pound per week rate?

This is just a kind of de minimis rate for which HMRC will accept unreceipted home-office cost claims. For claims above this level an appropriate copy of the rent charged and underlying costs should be kept.

Provided costs are reasonable, appropriate and proportionate, there is no reason why this should be refused, even if it comes to a thousand pounds a year or more.

If the rental income exceeds the costs then the difference should be treated as income from commercial property rental (which it is).

To avoid a CGT or UBR charge, use of any room should be non-exclusive and a rental agreement drawn up between the property owners and the company reflecting this. I'd include a diagram showing the office space and the actual square footage occupied, as well as including non-office items such as gym equipment or bookshelves (to illustrate non-exclusive use of the room)

As it is a commercial rental, the rent-a-room scheme does not apply. 

 

 

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By Marny
28th Jun 2013 02:16

Hope you do not mind but can I just add by asking.....

I have a new Client that has sent me his paperwork. He is a Director of a Limited Company, seperately rents out 3 different properties and has another seperate self employed business. All profit making. He works from home but does not claim any use of home expenses, or any telephone costs etc. His wife who runs an unsuccessful ebay business however claims 20% of actual billed home expenses (council tax, heating, light etc). She also bills for telephone, internet etc seperately.

I cannot see the problem in charging his limited Company some 'use of home' expenses too and then him as a self employed person making a charge in addition?

Although there are effectively 3 seperate trading entities is that too much for one home?

I guess the issue with multiple charges would be if the total (including the hard to measure personal element?) were to add up to more than the actual costs........

Any comments appreciated.

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Replying to jpg80:
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By frustratedwithhmrc
28th Jun 2013 08:27

Fairly straight-forward...

Marny wrote:
I guess the issue with multiple charges would be if the total (including the hard to measure personal element?) were to add up to more than the actual costs........

The costs themselves aren't tripled because you have a husband and wife running three separate businesses, so within reasonableness the property owner(s) can charge each business whatever rent is appropriate.

That being said, they go on the couples SATR as commercial property income, so the sum of the three rentals less the ACTUAL costs suffered (i.e. once), pro-rated by their share in the property and the difference is taxed at their marginal rate.

 

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By JJohn
28th Jun 2013 11:18

I am a Director of a Company and I charge use of home at £2 a week.

Should I be putting this on my tax return as income??

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Replying to Ruddles:
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By frustratedwithhmrc
28th Jun 2013 11:50

No

JJohn wrote:
I am a Director of a Company and I charge use of home at £2 a week.

Should I be putting this on my tax return as income??

For one the rate has gone up from £2 a week, through a brief period @ £3 a week and now stands at £4 a week.

This is an allowance against the actual costs of running a home office and at this rate you can't be making any profit.

SATR only applies if the office rental is greater than the costs, i.e. you are making a profit.

HMRC have said they will not challenge use of home costs at this rate.

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By cyrynpen
28th Jun 2013 11:27

Thanks for all the comments guys - very helpful and exactly what I needed. The rental agreement seems to be the way to go!

John - I wouldn't think so as you are simply reimbursing your costs of using your home as office. There is no profit element to it so not treated as taxable income in my view.

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By Darren Loring
28th Jun 2013 11:36

PDF available

Hi

I have a PDF document covering this which I send to my clients.  if you would like a copy please PM me with your e-mail address.

Darren

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By Marny
28th Jun 2013 13:00

I will stick to the £4 a week

I will stick to the £4 a week but will charge each of their seperate business then.

I was just concerned that they would in total be reimbursing themselves 4 times for the part-time use of an office space. She has just started up another business apparently so next year it will be 5 x use of home being charged! Not come across this before.

Thanks for the advice once again.

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Nichola Ross Martin
By Nichola Ross Martin
28th Jun 2013 13:09

More Tax guidance

I was reading this, and I apolgise but I don't have the time to give a full answer today. I have already written some really detailed guidance on this. If you go to the director's section of my site you can find guides on renting your home together with a template licence agreement. www.rossmartin.co.uk

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