Best way for business to pay for property

lisyloo

Last year DH was made redundant from a permanent job. He didn't find any work during 2013 as a lot of management positions were being cut.
He started a 6 months contract in Jan 2014 which has been renewed for another 6 months. We are confident that it will get extended long term but only for 6 months at a time.
An important distinction is that he's a director of a limited company (doesn't do IR35). Yes - he's taken professions advice and has insurance just in case HMRC don't like it.

The downside is that it's in London.
Initially he tried commuting but it's too long. It's 4.5 hours if everything is on time but about 50% of the time it's longer than that.
I have a permanent job but as luck would have it I can work from an office in London, so currently the business is paying for a serviced appartment 4 days a week for him and I'm staying in it with him for free and paying for my own travel.

Long term we believe that buying a property is going to be better than hotels/appartments or rent so we would like to buy somewhere (we have our own home that we own).
Currently the business pays for hotels, appartments or train tickets as a business expense.
If we bought somewhere what we'd like is for the business to pay for the cost of us living in London (like it does now for hotels and appartments and like it would if we are renting from someone else).
It's obviously better if the business pays because that's before tax.
However what I don't know is the best way to acheive this.
I appreciate that professional advice is needed but often forums throw up good advice and I wonder if any contractors have come across this situation before.

What we imagined was that we would personally buy the property and rent it to the business.
The primary motivation is legal tax avoidance i.e. for the business to pay for the costs of us living away from home (as it does now).

Is there a standard way of doing this?
I understand from mortgage brokers that we cannot rent to the business with a BTL mortgage, but here I'm asking about how it can be set up for best tax mitigation (although getting a mortgage is indeed another related issue).

Thanks for any advice.

BTW - not looking to sell current home. Our entire lives are elsewhere but includes caring commitments for elderly parents (86) who we do not wish to "abandon" in their last few years of independent living before going into a residential/nursing home.

antrobus

lisyloo wrote: »

...Currently the business pays for hotels, appartments or train tickets as a business expense.....

Temporary workplace where you expect to be working in a certain place for less than 24 months, travelling from home to the office becomes allowable. Note that as soon as you expect to work there for in excess of 24 months, travel from home to office is no longer an allowable expense. So if you start with a 36 month contract, no travel expenditure at all will be allowable. If you obtain an 18 month contract, travel expenditure will be allowed for the entire contract.

Contract extensions if your contract gets extended, from the moment you expect to be there in excess of 24 months, travel expenditure is no longer allowable. For example, if you originally obtain an 18 month contract, then when it ends you are given a further 12 month contract at the same location, none of the travel in the extended contract is allowable.

http://www.maslins.co.uk/guides/contractor-expenses/

lisyloo wrote: »

.....Long term we believe that buying a property is going to be better than hotels/appartments or rent so we would like to buy somewhere (we have our own home that we own).....

It appears that "long term" it won't be an allowable expense.

lisyloo

For example, if you originally obtain an 18 month contract, then when it ends you are given a further 12 month contract at the same location, none of the travel in the extended contract is allowable.

If I may just confirm (it's really important information - thankyou).If it's always 6 months contracts?, then the first 4 are allowable, but after that it's not allowable?

Does it make any difference that he's self-employed and not a "contractor"?
(I was told elsewhere that's an important distinction).

If it's correct then it means we either have to pay for the accommodation ourselves our of net income OR move house.

purdyoaten

lisyloo wrote: »

If I may just confirm (it's really important information - thankyou).If it's always 6 months contracts?, then the first 4 are allowable, but after that it's not allowable?

Does it make any difference that he's self-employed and not a "contractor"?
(I was told elsewhere that's an important distinction).

If it's correct then it means we either have to pay for the accommodation ourselves our of net income OR move house.

Is the 'self-employed' position a different enterprise as you stated that he was a director of a limited company?

Directors are most definitely not self-employed.

System

purdyoaten wrote: »

Is the 'self-employed' position a different enterprise as you stated that he was a director of a limited company?

Directors are PAYE, most definitely not self-employed.

Directors are not necessarily on PAYE, nor indeed receiving any remuneration at all. They may be paid dividends.

purdyoaten

Clifford_Pope wrote: »

Directors are not necessarily on PAYE, nor indeed receiving any remuneration at all. They may be paid dividends.

I am most certainly aware of that and have removed the 'offending' word.

lisyloo

Is the 'self-employed' position a different enterprise as you stated that he was a director of a limited company?
Directors are most definitely not self-employed.

Apologies if I've used the incorrect terms.
There is one business. He is the only person that works for that business.
He has a contract for providing IT services to a single customer.
He receives his renumeration from the company via dividends to avoid income tax and doesn't use IR35 (I believe he's been correctly advised professionally but insurance is in place in case HMRC decide otherwise).

I am a director of the limited company also but I don't work for it or receive any renumeration (I have 49% share).
I have seperate permanently employment and get paid via PAYE.

Neither of us particularly wish to live in London.
It's simply the only job that was on offer after medium term unemployment.
I join my husband out of choice as it's preferable to commuting or living apart.

Moving would be a logical choice apart from the fact that our entire lives (friends,family,dream home) are elsewhere, including elderly disabled parents whom we need to be "on hand" for over the next few years.

agrinnall

lisyloo wrote: »

If I may just confirm (it's really important information - thankyou).If it's always 6 months contracts?, then the first 4 are allowable, but after that it's not allowable?

He'll probably get away with it for four 6 month contracts, but playing it strictly by the book as soon as he has a reasonable expectation that he will be at that place of work for more than 2 years he has to stop claiming the expense.

I don't know anything about how good IR35 insurance is, and there's a pretty fair chance HMRC will never do anything anyway, but I'd say he is very likely to be within the scope of IR35 if the contracts are all with the same client at the same place.

Is he being paid entirely through dividends? While I've been away from contracting for a few years the advice was always to continue to take a small salary (looks like it would be about £5772 for this year) in order to maintain NI contributions record to receive full state pension.

PS How come your 49% holding doesn't attract any dividend payments? Is that legal?

Mattygroves2

agrinnall wrote: »

How come your 49% holding doesn't attract any dividend payments? Is that legal?

It's legal so long as you've got the paperwork to say that the dividend has been waived.

All directors are employees even if they don't take any remuneration.

As above I think you would get away with it for 4 six month contracts but then it would become a benefit in kind and taxable on both of you if you both use the place.

lisyloo

Thanks everyone for all the info.

What I've found out so far is
. With only 6 months books we won't get a residential mortgage. It will need 12 months min.
. A BTL mortgage won't work if we want to live in it ourselves.
. Having the business pay for accomodation before tax is a 24 month benefit.

but then it would become a benefit in kind and taxable on both of you if you both use the place

I understand this is the law, but I find it amusing that it's a "benefit" to leave my 5-bed house and go and live in a broom cupboard for purely business purposes - but I'm really not complaining - it's just an observation.

Thanks again.

TheCyclingProgrammer

Interestingly, a discussion here about a similar situation with a debate as to whether the contractor's partner living with them in their rented flat had any implications on whether or not the rental expenses were claimable:

http://forums.contractoruk.com/accounting-legal/100215-rented-accommodation.html

My view was that it wasn't as long as you could show the sole purpose was for business reasons and not also to enable the partner to be closer to work which could create an inherent duality of purpose.

Personally I think you'd have to be crazy to consider buying a property when your partner's contract could effectively be terminated at any time. Even having a long term rental contract creates a financial risk.

The fact that you think he'll be there long enough to warrant buying a place to me says that you expect him to be working there for more than 24 months which as somebody has already pointed out, strictly means that you are no longer able to claim travel or accommodation expenses although I guess practically speaking HMRC would find this hard to prove and would only have the contracts + extensions as evidence. In which case he's fine until he signs the first extension that would take him over 24 months - i.e. if after 18 months he signs a 12 month extension instead of a 6 month extension he will have to stop claiming at that point.

I would also question the assertion that OP's husband is not caught by IR35 as it sounds like there's an ongoing expectation of work from his "client", i.e. there is potentially enough mutuality of obligation for there to be an employer/employee relationship although its not possible to say for certain without knowing more about the working practices (direction and control) and any right of substitution.

I assume OPs "professional advice" included a proper review of his contract and working practices because if IR35 caught there are a lot of implications not only in how the income from the contract is taxed but also on the allowable expenses.

Finally, one final point on the 24 month rule - its based on location, not client. Even if OPs husband was to stop working for current client and begin working for a new one in London its very likely that the 24 month rule will still apply as there is arguably no significant change of location that would reset the clock, so to speak.

It has to be looked at in context and the overall length/cost of the journey. Somebody who works in Essex working in East London might face a substantially different journey in terms of length/cost if they then had to work in West London. However if you live up North, for instance, there's likely to be any significant difference in your journey wherever you work in London and HMRC may well take the view that your "workplace" for the purposes of the rule is just "London".

If there is a strong possibility of ongoing work in the London area, from one client or many then the only sensible thing to do from a financial point of view is to consider moving there or purchasing a second home as OP is considering but this would not be tax deductible in anyway (nor would any travel/subsistence/accommodation costs between hypothetical second home and workplace as it would likely be treated as ordinary commuting once the 24 month rule has been breached).