Rent a room scheme
Many Limited Company contractors will carry out at least some of their work from their own home. Even if the majority of client work is done at the client’s site there will still be admin tasks like book-keeping and invoicing which will usually be done at home. Most contractors will be aware that HM Revenue & Customs recognises that some home working is necessary for contractors to run their businesses and allows applicable costs to be charged to the company. What some may not be aware of is that it is also possible to claim an additional tax allowance if you rent out a furnished room or even a whole floor in your property. You don’t have to own the property to claim this either; you simply have to be living in it as your principal residence. If you qualify for this extra allowance, this could give you a potential extra tax saving of up to around £850 per year.
These two allowances work in entirely different ways, so speak to your contractor accountant to find out if and how they apply to your own circumstances.
Basic claim – If you do not have a specific room in your home set out for business use and only use it to carry out general administration tasks you can claim £4 per week. You do not need to keep any records of costs and this kind of claim is unlikely to be challenged by HMRC.
Apportionment of costs – If you usually do your fee earning work from home and have a separate room set aside for this purpose you can make a claim based on the amount of space used and the actual costs incurred. In this case you will need to show how you calculated the amounts claimed and keep all relevant bills and invoices for 7 years.
As the apportionment of costs option is clearly a little more complex to calculate, speak to your contractor accountant for guidance to ensure you’re claiming the correct amount.
Rent a Room scheme allowance
The rent a room scheme allows you to personally earn up £4,250 per year tax free from renting out furnished accommodation in your home. This is halved if you share your income with partner or someone else.
The details of this scheme are:
- The tax exemption is automatic if you earn less than the minimum income tax threshold.
- If you earn more than the threshold you must complete a tax return. You can then choose to opt into the scheme and claim your tax free allowance on the return.
- If you choose not to opt into the scheme you must record your income and expenses on the property pages of your tax return.
- You can opt into or out of the scheme at any time.
- To be eligible you must be a resident landlord – whether or not you own your own home – or run a bed and breakfast or guest house.
- This scheme does not apply to homes converted into separate flats.
Opting into this scheme may not be the best option for all contractors, so check with your contractor accountant that this is a sensible course of action for your own personal and business tax circumstances.
At Intouch all of our clients are kept up to date with the most tax efficient options available. This helps ensure that they maximise their income while remaining fully HMRC compliant.