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.