RE: Use of home charges for ltd company directors

readerreader Experienced MentorMAAT, AAT Licensed Accountant Posts: 1,038
Hi,

How does everyone calculate use of home charges for ltd company directors.

Sole traders is straightforward, e.g. apportionment of personal bills.

However what is everyone's view regarding ltd company directors?

For example, imagine a company has a husband director and wife employee, would you claim £18/month for the husband or £18month for both?

Or would you create a rental agreement between the homeowners as landlords and the limited company as the tenant?

If you create a rental agreement do you declare the rental income on the personal tax return? And claim expenses?

Does it make a difference if the ltd company director only works from home in evenings and weekends, versus the ltd company director actually working from home as they do not go out for client visits?

Comments

  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,448
    As employees they can only claim the extra cost of heating/electricity/ landline business calls etc...so if they only work at home evenings and weekends I usually go with the £4 a week/£18 a month.
    It is my understanding that the allowance is per employee so would claim for both directors.
    If home is their place of work I set up a non exclusive licence agreement (then costs like council tax and mortgage interests can be apportioned) and complete the property pages of the SATR.
    reader
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    edited March 2018

    As employees they can only claim the extra cost of heating/electricity/ landline business calls etc...so if they only work at home evenings and weekends I usually go with the £4 a week/£18 a month.

    It is my understanding that the allowance is per employee so would claim for both directors.

    If home is their place of work I set up a non exclusive licence agreement (then costs like council tax and mortgage interests can be apportioned) and complete the property pages of the SATR.

    I agree wth this approach, e.g. 216 per person.

    Especially declaring the property income on the personal tax return, and setting up a licence agreement. It adds a level of formality that would look particularly commercial/genuine in the event of an investigation.
  • arjunarjun Registered Posts: 12
    £4 per week per person is exempt benefit for an employee and employer doesnot need to keep any records either.

    Non exclusive rental agreement supports the PPR relief to claim 100% and no business rates. However this needs to be declared in tax return for an individual.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038

    As employees they can only claim the extra cost of heating/electricity/ landline business calls etc...so if they only work at home evenings and weekends I usually go with the £4 a week/£18 a month.

    It is my understanding that the allowance is per employee so would claim for both directors.

    If home is their place of work I set up a non exclusive licence agreement (then costs like council tax and mortgage interests can be apportioned) and complete the property pages of the SATR.

    One follow up question from this, given that the landlord (director as an individual person) and the company are connected by virtue of the director/shareholder, do you value the rental charge at market value (due to connected persons rules)? And therefore the rental profit is subject to income tax?

    Or do you just charge an amount equal to the expenses and therefore zero profit (which doesn't make much sense from the landlord point of view- why would you let out your house for zero profit)?
  • arjunarjun Registered Posts: 12
    For the use of home don’t have to be market rent as this does not fall neither under Pre Owned Asset rules nor rental property whereby any capital loss will only be offset against any future gains from the same person.

    Zero profit: even though it’s zero profit for an individual, the company gets 20 or 19% tax relief.

    Hope this helps.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,448
    edited March 2018
    arjun said:

    For the use of home don’t have to be market rent.

    I disagree on this as if the rent is higher than MV it could be argued that it's not wholly and exclusively for business and could be disallowed as a deduction from profits in the Ltd do accounts.

    Edit: re reading your comment @arjun I think we are in agreement that the connected rules don't apply when rent is set at a level below MV.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    This article by a top 50 firm of chartered accountants seems to suggest that a rental charge should be setup at market value and income tax paid:
    https://www.raffingers.co.uk/can-i-make-a-claim-for-my-home-as-an-office/

    I'm assuming they believe the charge should be market value because it is a related party transaction.

    I'm assuming this has to be disclosed in FRS102 accounts in the related party transactions section? Another reason to use FRS105!
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,448
    I would say the landlord can charge whatever as long as it's not excessive. The only restriction would be that when offsetting expenses it can not create a loss?
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038

    I would say the landlord can charge whatever as long as it's not excessive. The only restriction would be that when offsetting expenses it can not create a loss?

    I don't know to be honest.

    There seems to be a few cases going on at the moment where HMRC have rejected the wife's salary as it was not market rate

    I agree with the chartered accountant's article that market rate would be better as it makes the arrangement look more genuine/commercial rather than tax avoidance, and the two parties are connected so HMRC would value the transaction at market rate anyway.

    I agree re: you can't create a loss c/f if charging below market rate for rent.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,448
    I don't think there is a question of tax avoidance here if the rent received is to cover genuine expenses for using an office space at home.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038

    I don't think there is a question of tax avoidance here if the rent received is to cover genuine expenses for using an office space at home.

    I do agree with this, but if the rent is just calculated as an apportionment on mortgage/council tax then are these expenses really genuine expenses. Surely these expenses would still be incurred even if the client didn't have a business.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    Do you show this in the accounts as rent or use of home?
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,448
    reader said:

    Do you show this in the accounts as rent or use of home?

    I show it as rent if there is a rental agreement in place.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    Good idea

    The courts recently rejected a BBC news reader claiming homeworking costs (see page 39) due to their being no arrangement between her company and herself as the homeowner and no evidence of additional costs incurred as a result of working from home:

    http://www.devereuxchambers.co.uk/assets/docs/news/CMS_13.02.18_CAM_Decision_.pdf

    MarieNoelle
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,448
    I bet they didn't claim £4 a week though.
    It also looks like they didn't bother providing evidence of extra costs.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    Exactly

    It would have been way over £4/week hence the reason HMRC challenged it

    And obviously there was no evidence, her council tax, mortgage interest, sky tv, etc would have all been the same even if she was working permanently for the BBC (rather than via her company) hence the lack of evidence and hence the successful HMRC challenge.

    Finally, HMRC are clamping down on this.
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