Renting accommodation as a Limited Company contractor

Renting accommodation

 

Most contractors will consider renting accommodation when taking on a contract that’s some distance away from their home. Your Limited Company can always foot the bill, but how do you know if it’s classed as a benefit in kind?

 

Provided that the expense is a legitimate business cost, HMRC will not tax the value of the expense as a benefit in kind.  But if HMRC does not class the rent as a legitimate expense, it will then be seen as a benefit in kind and will therefore be taxable.

 

How is accommodation classed as a legitimate business expense?

 

The first and most important test, which should be considered everytime money is spent, is whether the “journey” is or remains a business journey. You can very easily be caught out by the 24 month rule.

 

The second test is that you have a separate property to your rented property, that acts as your main permanent residence.

 

If you travel to a client’s place of work solely for the purpose of completing the contract, then you are able to claim your rental accommodation costs as legitimate business expenses.

 

If you pay your accommodation and other associated living costs through your company, you’ll be able to reduce the amount of company tax you pay in the process.

 

Are there any risks?

The costs are allowed because they are treated as part of the normal costs of travelling, for the purposes of the contract (as travel and subsistence). Provided the journey remains a business journey then you are in the clear.

 

There are of course some pitfalls to watch out for. If you use the accommodation for personal reasons, such as providing a friend with a free bed, then this could mean a proportion of the costs are a taxable benefit. You can also be caught out if you remain in the property at weekends on a regular basis rather than returning home, although occasional stays would be ok.

 

If you don’t have a permanent residence and move from one temporary residence to another, you will be taxed on the costs met by the company. This is because the property serves two purposes, your main home and to allow you to work in the location. In this case the full cost would be taxable.

 

Finally it’s not just the rent cost that can be claimed, but the rules can be very tight and you should check before spending company money on the multi media equipment and expensive furniture.

 

It’s better to be safe than sorry!

Before agreeing to a lease on a temporary accommodation, it’s always best to run it past your trusted contractor accountant to ensure you won’t be left out of pocket. Working out which expenses are allowable can sometimes be tricky, but it’s worth understanding their value for tax purposes.

 

Your contractor accountant will be able to provide you with expert, tailored advice when it comes to your tax and business spending, ensuring you get the best and most from your business and personal income with expenses.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Can I use company money to pay my personal mortgage?

Can I use company money to pay my personal mortgage?

Contractors who set up as a Limited Company may find that they have surplus cash in their account, which earns very little interest in the company bank account. A question that many Contractors have is if this money can be used to offset a personal mortgage.

What many Contractors forget is that the money in a company account belongs to the business and that until the funds are moved into the personal account it does not belong to you personally.

In addition, banks will not allow you to use money from your account if you are looking to offset it against a personal mortgage. You can however take money from your account in the form of dividends, a director’s loan or salary, although there are issues to be aware of.

If you are working outside of IR35 there are two possibilities of drawing money from your Limited Company account to transfer to you personally, these are:

  • Directors Loan
  • Early Dividends

Whilst the above options do exists there are complications that you should be aware of for each that we will now discuss.

Directors Loan

Up to £10,000 tax free can be taken from your Limited Company account in the form of a Directors Loan without it being classed as a benefit in kind. However, if your loan is more than this amount you will be required to pay interest to your account at rates assigned by HMRC.

Another point to be aware of is that if you do not repay your loan within nine months of the company’s year end, you will be subject to pay tax at 25% of the value of the outstanding loan to HMRC.  However, when the loan is paid back you will be able to reclaim this tax.

It is important to document all loans taken from your Limited Company so that you can provide a complete record to HMRC if required.

Early Dividends

Dividends can only be paid from the profit your business earns, so whilst using money set aside for tax, with the intention of earning the tax amount later from future expected income seems like a good idea, it is not recommended. Any money taken before profit is available is considered a loan.

As taking early dividends opens up a number of issues, it is not recommended as an option for offsetting a personal mortgage.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Can I buy property through my Limited Company?

Can I buy property through my Limited Company?

It is possible to buy property through your Limited Company; however there are many things to be aware of and consider before taking this step which we will now review.

To start with, it is not recommend buying your first property via your Limited Company.  This is because in doing so you would incur a benefit in kind, unless you paid the commercial rent to your company. You will also incur Corporation Tax at the point of selling the property.

When deciding whether to buy through your Limited Company there are certain factors to consider and many will depend on your personal circumstances. To be sure of your decision it is recommended that you sort advice from your accountant.

To help determine whether buying property through your Limited Company is right for you, we take a look at questions received from some of our Contractors:

Is it tax efficient to buy property through my Limited Company?

Buying a second property through your company involves some tax considerations. Corporation tax at the rate of 20% is payable for any rent received and profit made on the sale of your property. Another point to consider is whether you are registered on the flat rate VAT scheme. If so, this will mean that any rental income you receive will amount to turnover for VAT purposes and you will be required to pay part of this to HMRC every quarter.

What impact is there on tax when buying a property in my own name?

For any rent received you will be taxed using up some of your tax band. This means you will have less availability for basic rate dividends.

Would I be subject to Capital Gains Tax?

Capital Gains Tax is payable when your property is sold at either 18% (basic rate) or 28% (higher rate).

Are there any risks of buying through a Limited Company?

The property is owned by the company and is classed as an asset of the business. There are potential risks to your property should your Limited Company experience any financial or legal difficultly.

How do I secure a mortgage?

A personal guarantee from a director may be required to secure a mortgage. If so, you will need to be aware that it takes you out of the limited liability protection of your own personal assets.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.