New dividend tax: how contractors can prepare - charging company for WFH premises

[d000hg]

New dividend tax: how contractors can plan :: Contractor UK

If you own premises from which the company operates, or even if you work from home for all or part of the time, consider making an appropriate charge to the company. If set at a market rate the charge should be fully tax-deductible for the company and (unlike remuneration) will not give rise to a charge to NIC.

This advice seems to contradict what I've seen elsewhere. Old HMRC pages say you can work out a % of your floorspace used, and the % of the time, and charge that proportion of bills to your company. But newer guidelines seem to supersede this in favour of the very low flat rate.

Can one really charge the company market rates for renting a room in your house as an office - and if so how would one work out market rates when I've never seen anyone offering a room in their house for rent for a business?!

Do any current/recent HMRC guidelines apply?

For reference I WFH 100% and have done for pretty much my entire contracting career. I have a room which is my office/study. At once point I charged £100/month for expenses, then lowered it to £50 out of uncertainty if this was strictly legit or not.

Any authoritative replies, backed up preferably, would be welcome - if I can legitimately claim more that's great, but it's being suggested 'officially' by CUK so seemed worth making sure.

[Danglekt]

When I looked into it I was scared off by the potential impact it has on the fact the business is funding the property and therefore some of the property begins to belong to the business (I'm not sure on the right terms sorry, but that is a gist)

[northernladuk]

They way I've read it over the years is that the flat rate applies to 99% of us as we don't truly work from home. At best we get some WFH flexibility from the client but it is just that, flexibility, not part of the working arrangement so difficult to defend if HMRC come knocking.

If you are genuinely based there then it wasn't unreasonable to claim for the office space and % calcs. It's just accountants err on the safe side as it would be too easy for people to not understand the risks and take the piss.

In your situation I would most certainly be investigating the %space option in detail. You clearly fit the bill so why not.

[d000hg]

Clearly then I should use the biggest room we can spare... (I think it's done on square footage, or one version is).

You've got electricity, gas, water, internet, council tax and mortgage as your typical bills. But AFAIK you can only claim a % of the mortgage interest?

But then this is charging a proportion of bills based on proportion of the house used. The article linked talks about market rate. For instance we currently have a lodger paying ~£300 pcm which is the market rate here. That's considerably more than proportion of bills for one room.

I'm not after some dodgy swindle here BTW, just confused what is and is not legit, when it seems there are different ways of approaching this - especially what's in the article which doesn't tie in with my previous understanding.

[northernladuk]

Well it sounds all legit from what you say.. Have a look at these..

Home Office Calculator
Use of home as office calculator

Interesting article which mentions the flat rate is for voluntary working from home which makes sense now.
https://www.gov.uk/tax-relief-for-em...orking-at-home

If I was you I'd be chatting to an accountant exploring the opportunity of getting something long term in place so you can evidence its genuine rather than ad-hoc arrangement. Dunno if an agreement between the mortgage holder and the business can be drawn up to make it official or something like that. Work a figure out using the calculator and set up a contract between the business stating the rate.. dunno, might be overkill, am just guessing here.
The idea would be the agreement is in place even if you are on the bench, it's still your office.

[TheCyclingProgrammer]

Charging YourCo a rent can be a legitimate way of recouping the additional costs of working from home but I wouldn't call it a very good tax planning strategy. You can charge YourCo anything you like up to a reasonable market rate but anything in excess of what you can legitimately claim on your tax return as rental expenses will be taxed at your marginal rate anyway. So this advice sounds like nonsense to me.

There's also the potential CGT implications too.

You CAN claim more than the flat £4/week from YourCo as an employee for use of home without the rent method, but it has to be additional costs (with evidence) and not a proportion of fixed costs. Renting to YourCo potentially lets you also recover a share of your fixed costs too (anything thats allowable against your rental income basically), thats it.

[TheCyclingProgrammer]

When I looked into it I was scared off by the potential impact it has on the fact the business is funding the property and therefore some of the property begins to belong to the business (I'm not sure on the right terms sorry, but that is a gist)

Does that mean people who rent own a proportion of their landlords property?

[TheCyclingProgrammer]

You've got electricity, gas, water, internet, council tax and mortgage as your typical bills. But AFAIK you can only claim a % of the mortgage interest?

If you can claim a proportion of it on your tax return as an expense to offset your rental income, then include it in the rent you charge YourCo. Remember that the rules regarding claiming a percentage of mortgage interest are changing next year.

But then this is charging a proportion of bills based on proportion of the house used. The article linked talks about market rate. For instance we currently have a lodger paying ~£300 pcm which is the market rate here. That's considerably more than proportion of bills for one room.

I'm not after some dodgy swindle here BTW, just confused what is and is not legit, when it seems there are different ways of approaching this - especially what's in the article which doesn't tie in with my previous understanding.

Yes, the article makes no sense. If a fair proportion of your fixed costs plus other allowable costs, apportioned by room numbers and the time you work from home (or whatever reasonable method makes sense) comes to say, £100/month, then charge YourCo £100/month. If you charge YourCo £300/month, the £300 will be tax deductible for YourCo but you'll be left with £200/month rental profits that you will be taxed on.

FWIW, I work from home about 80% of the time (sometimes more) but I've always just claimed the £4/month. I could probably claim more but I could never be bothered to work it out and the rental route didn't appeal to me.

[VectraMan]

Home Office Calculator
Use of home as office calculator

Well that's confusing. All the stuff about bills and rent/interest and at the end it says there's a fixed rate. Does that mean you get both? And the HMRC link above says you don't need to provide evidence if it's £4pw so then you do need to provide evidence if you claim the fixed amount?

What am I missing?

I looked at this a few years ago and was told £3p.w. which didn't really seem worth the effort.

[jamesbrown]

FWIW, I work from home about 80% of the time (sometimes more) but I've always just claimed the £4/month. I could probably claim more but I could never be bothered to work it out and the rental route didn't appeal to me.

FWIW, I've looked into this carefully, I am 100% WFH and I also claim the £4pw (actually £18pm for the princely bonus of £8 per year ).

ps. I agree that the article is utter tulip.