expenses & Vat registration for a company help please

clearaccounting100

Hi, i have been approached by the directors of a company to do their accounts for them. They have set up a web based company which they are running from their homes. Are they as directors allowed to claim a proportion of their household costs in the same way as a sole trader can for business use? They are not actually drawing a wage or reclaiming expenses at the moment. If they are able to reclaim the costs i take it that they would just be reimbursed and the amounts recorded on their P11D. If they are allowed but do not reclaim them i assume that the bookkeeping entry would be to debit the relevant expense a/c and credit the director's loan accounts? Can anyone please clarify for me please?

They are in their first year and they haven't taken much in the way of turnover, however, they have incurred quite a lot of expenses. Are they able to voluntary register for VAT even though they are well below the threshold so that they can reclaim VAT back on future purchases? If so, would this be an advisable thing to advise them to do, does anyone know of any pitfalls in doing this?

All help is very much appreciated. I only started doing this full time at the beginning of the month so finding my feet at the mo. Many Thanks

AK002

Yes they can claim back an apportion of household costs, i.e. heat & light, mortgage interest etc, i'm not too sure on P11D..

You can voluntary register for VAT at any level, if they are going to exceed the reg limit in the future then no real harm in registering now.

Maybe look into the Flat Rate Scheme, only pay a % of their turnover and can reclaim any capital expenses larger than £2k...

Bluewednesday

As to whether to register before hand it all depends on the nature of trade and type of customers before anyone can advise that.

There are strict rules on household costs for use of home for employees which you will need to look at the Revenue guidance for.

clearaccounting100

many thanks

Julia Crouch

Hi

The way that I deal with this is to set up a license agreement between the home owners and the company to, in effect, let the areas of the property being used by the company with sufficient consideration to cover the costs discussed, ensuring that the amount of the rent is fair and not excessive.

This way the company has an expense for rent allowable against CT and the home owners declare the rent received as letting income on their own SA returns.

Avoids all the messing with payroll, P11d etc.

Julia

Vonni

Hi

I would be wary of making rent payments to the directors as this could have implications for them when and if they sell their home as the PPR has been used for business purposes and a CGT charge might apply.

There is a flat rate for employees working from home which is Revenue approved and would not give rise to a tax charge.

You could also set up a Revenue dispensation to cover reimbursement of expenses so that these did not need to be declared on P11D.

Again I would be wary of claiming a proportion of mortgage interest - however, I would not have a problem with claiming a proportion of home costs such as Light & Heat providing you could clearly show how that calculation had been made. Additionally if you incur additional costs for insuring company assets on your contents insurance (office furniture and computer equipment) there should not be a problem as you could quite clearly prove the additional cost on your insurance renewal/schedule. Again the increase in your telephone costs or internet service provider charges could be justified too.

Hope this helps.

Vonni

deanshepherd

I think there are a lot of mixed issues here. Charging additional costs on a marginal basis is only relevant to employees, as oppose to renting space to your own company. I would do as Julia does and charge a fair rent based on a percentage of all running costs (including mortgage interest and council tax). I have never seen any client lose part of their PPR from doing so unless they have an area precluded from being used privately (e.g. a dentist having converted part of his home as a surgery).

Vonni

Whilst I have not personally seen one of my clients loose part of their PPR from renting out part of their home for business use I have spoken to an ex colleague where the Revenue have challenged this. This was where a director set up an agreement to rent a room in his house to his limited company to run an internet business, he argued that the room could still be used as a bedroom but the revenue disagreed and when he sold his house they decided part of his dwelling house had been used exclusively for a trade or purpose and that part was therefore disallowed for relief. I know there was an appeal but unfortunately do not know the outcome.

See the Revenue website Helpsheet 283 PR Relief which states you are entitled to full relief if "no part of your home has been used exclusively for business purposes during your period of ownership".

Whilst you may argue on behalf of your client that the room that is rented out is only a part of your house and may still be used as a dwelling room don't foget the new Revenue powers. As reported in the Telegraph the tax man can now turn up at a private residence, where you work from home and claim rent or business use allowance.

I'm not saying it will definitely happen but the more official the arrangement ie. a form of contract between the limited company and the director might give rise to further investigation or challenge.

groundy

We always charge a rent to the company based on expenses and have had this agreed during a HMRC inspection. You should note that although the rent is declared as an income to the director on SA you offset the actual cost and therefore there is no taxable income for the director but a tax allowable expense for the company.

On a smaller basis HMRC will still accept £2 per week as a use of home allowance but any more would be subject to tax on the director.

I have yet to come across any client having a problem selling their residence due to this rent allowance.

clearaccounting100

Hi Vonni, how do you set up a Revenue dispensation please so that i can avoid the p11 please?

Many thanks
Linda