If you are the director of a limited company and you work from home, as a lot of our clients do, you should consider renting a room to your limited company. This is fairly straight forward to set up and the rent paid by the company can be used to reduce any taxable company profits and in turn reduce your corporation tax bill.
Things to consider
1. You will need to create a valid rental agreement to support this arrangement.
2. You will need to calculate a suitable rent to be paid by the limited company.
What about personal taxes on the rental income I receive?
When the rent that is charged to the company is calculated you need to remember that the rent charged should be equal to the cost of the room to you. This way the rental income that you receive will be equal to the cost of the room and as such there is no taxable gain.
You will need to remember to disclose the rental income received and the associated costs on your self-assessment tax return but no income tax will be due.
Who can do this?
The best part to all of this is that you can operate this arrangement if you rent your home or if you own your home, so no one is excluded. The rental calculations will be slightly different as the rent you pay to your landlord will need to be considered if you rent your home vs the mortgage interest you pay if you are a homeowner.
If you are interested in setting up an arrangement like this then feel free to contact one of our cheap accountants who will be able to advise you further and calculate an appropriate rental charge for you as well as drawing up a rental agreement to support the arrangement. It’s also worthwhile noting that the professional advice and guidance you need to enter into a transaction like this is provided free of charge to all of our paying clients.