Home Office Rental Agreement

[bartman]

Hi,

I'm hoping someone might be able to save me a little time and expense!

I am a contractor working solely based from home, and am looking to set up a rental agreement between my Ltd. and myself/wife to rent out a dedicated room in the house as an office (9-6, Mon-Fri). Searching around the WWW, I have found a number of rental agreements that are defined in terms of the expenses incurred by the Property Owner (e.g. mortgage interest / gas, electric, council tax etc..). However, I am advised that the best route for me is to agree a rental which is based around comparable serviced office space of a similar square footage (i.e. not directly household expense based). I can't seem to find a simple document template for this, so was wondering if anyone had one they would share, or alternatively point me in the right direction.

Thanks!

[northernladuk]

This help?

Contracting guide to home office expenses for limited company contractors

Check your lease about sub-letting and your home insurances as well.

[bartman]

Yes that helps. Thanks for link - provides some good information and advice.

Unfortunately no pro-forma rental license agreement - link suggests asking accountant, but no joy there.

[stek]

Home Office Rental Agreement

Though it was £4/week!

[northernladuk]

Though it was £4/week!

That is for our general use when office work is a bit adhoc. Keeps HMRC happy. I think the poster indicates he works full time from home so his office is his only workplace all day so a lot more justification to be able claim a percentage of bills and floor space.

We can also claim this if we want but it's not going to sit well with HMIT when the client then says you are on his site 4-5 days a week.

[jamesbrown]

Though it was £4/week!

That's the standard allowance, no questions asked. It's rarely worthwhile to factor actual costs, even if you work 100% from home (as do I). Say your rent/bills are £6000pa and you have an office used for a third of the day that occupies 10% of the floor space. You're talking about £6000*1/10*1/3=£200 versus £208 no questions asked. Perhaps if you have a massive office in a tiny flat, but I can see that conversation If it's a dedicated workspace, the other thing to consider is business rates and capital gains on sale.

[Nixon Williams]

If you trade through a limited company it is possible that you can claim for more than £208 per annum, however, you will need to set up a rental agreement between you and your company. Failure to have a formal agreement could lead HMRC to classify the rent as extra salary with the Tax/NIC consequences of this.

Rental payments can be beneficial due to your company being able to deduct rental payments when calculating the Corporation Tax due on the profits; however, there are other areas to consider before doing this:

Factors to consider are:

1. Rental levels agreed must not exceed a commercial ‘arm’s length’ amount;
2. You should have a separate room to dedicate as an office;
3. You should have a formal rental agreement in place;
4. Consider having independent rental valuations on a regular basis;
5. You would need to declare any rental income on your personal tax return each year and any profit on this (income after allowable expenses) is taxable as income (this may reduce the tax efficiency of this option);
6. How this affects your Private Residence Relief (explained below).

You may be able to obtain a guide of local rents from local serviced offices, these tend to be based on the space and include a charge for rates, insurance etc. to back up point 1 above.

Private Residence Relief

Caution needs to be taken to ensure that you do not lose your Private Residence Relief (PRR) when you come to dispose of your home. To protect your PRR it is worth stating in the agreement that the room is only let to the company for a designated period each week/month, say Monday to Friday 9am to 5pm but HMRC could still argue that the office is used for business purposes and thus disallow part of the PRR claim when selling your home.

Having said all of the above, this is generally not something we would suggest, but we would recommend that the £208 per annum or £18 per month (if claimed monthly) is claimed.

[stek]

Home Office Rental Agreement

Is it worth it if you are going to have to delicate rental income on it personally?

Not thinking of charging your limited like 10k a year or something!!?

[Nixon Williams]

Is it worth it if you are going to have to delicate rental income on it personally?

Not thinking of charging your limited like 10k a year or something!!?

The sums are likley to be small, it might be that the property is jointly owned, so only 50% would be declared on each tax return.

In my view it probably is too much bother to be worth doing, but some like to know what is available!

[bartman]

Thanks for the added information.

I'm now not sure whether the amount of rental should be based on something comparable using local serviced offices as a guideline (i.e. similar square footage, location, facilities) or alternatively based directly on a percentage of household bills.

Maybe I have misunderstood and have been thinking based on the former not the latter. From the above posts it sounds as if maybe the rental amount should be based on the latter (and should just not exceed commercial rates). The difference is quite a lot - and in fact if the latter, then yes it's probably not worthwhile.