Renting flat above a shop

JodieR

A client of mine rents a shop which includes a small flat above it which he rents out (DSS tennant, doesn't make much rent). The previous accountant has just included the rental income in with the shop takings and declared it all on the self employment pages - is this correct? I would have thought it should be on the rental income pages. Is there some sort of de-minimus which applies?
Also, his year end is October for the shop, so if I do change to doing seperate pages for the rental it could get a bit messy as the 10/11 return would have to be amended to include the rent from Nov 10 - Mar 11.
Help!

groundy

I had this instance a few years ago with a hairdresser client were the previous accountant had included the rental income with the self employment. What you need to check is the calculation for Class IV NIC. If the rental is in self employment and profits are high enough then Class IV will have been paid on rental income and it does not need to be.

In my example we wrote to HMRC for copies of the previous years tax returns were rental income had been received. We then wrote correcting the rental income to be included on the land and property pages which lead to a tax refund of £1,600 for my client who was very happy with us.

Also yes the rental income should run to the tax year not the accounting year.

stefanboro

Hi Jodie,

In my experience this is not all too uncommon. The major thing to look out for is that rental income is exempt from class 4 nic's - obviously if it has been included that more tax would have be paid then needed assuming the profit levels are above the threshold. Best of luck.

PGM

If the shop is rented, how would you allocate the split of rental cost to go against the flat / commerical shop?

I can see why some accountants would want to keep it as one entity, saying the income is part of the business, and avoid all the apportioning hassle..

JodieR

For the amounts involved I don't think it would be worth amending previous returns or even changing methods going forwards, as PGM says it's a hassle to apportion the costs - by the time he's paid me to separate it out and complete the rental pages he'll have lost any nominal class 4 saving, so if it's alright with HMRC to carry on as is then that is what I will do, I'm just trying to find out if it's allowed or if I really should be completing the rental pages too.

Dean

I agree with Groundy. You should really be completing the rental pages.

Let me ask you this; if he didn't have the shop what pages would you complete? Property income is property income not trading income.

You could still complete an I&E account including the rental income so that everything is still 'lumped' together then make the required adjustments on the tax comp to split between (old money) sch D & A.

Regards

Dean

JodieR

Right, I've just dug out my 'Self Assessment tax returns guide' for 2009/10 (can't find 2011/12 online) and the guidance for completing box 15 on the full self employment pages says:

Include Business income that does not form part of your business turnover, such as:
* Rental Income (not included on the UK property pages
* blah blah a few others

So it looks like it's an acceptable way to do things, and in this case probably the best way!

Thanks for the replies though

PGM

Dean wrote: »

Let me ask you this; if he didn't have the shop what pages would you complete? Property income is property income not trading income.

On the flip side, he's only renting the flat because he has the business. So it's all tied up within the one business.

Looks like Jodie has solved the problem.

Dean

PGM wrote: »

On the flip side, he's only renting the flat because he has the business. So it's all tied up within the one business.

This is client logic. Good job we know differently.

Regards

Dean

Dean

JodieR wrote: »

Right, I've just dug out my 'Self Assessment tax returns guide' for 2009/10 (can't find 2011/12 online) and the guidance for completing box 15 on the full self employment pages says:

Include Business income that does not form part of your business turnover, such as:
* Rental Income (not included on the UK property pages
* blah blah a few others

So it looks like it's an acceptable way to do things, and in this case probably the best way!

Thanks for the replies though

Jodie, how reliable is that source? It may be HMRCs interpretation and for reasons Groundy suggested (class 4) they would say its an acceptable way of doing things.

Regards

Dean