do i declare income for a lodger

eviltoad

Hi,

I'm a tennant of a housing association and I have permission to rent a room in my house to a lodger.

I am not in the "rent-a-room" scheme.

The lodger pays £100 per week including council tax and utilitiy bills, which mean I get an income of £5200 (inc bills)

I've just seen on a lot of websites that I can only earn £4,250 a year tax free from this and have to declare the extra £950 to HMRC in a tax return.

Is this correct?

What about the proportion of the rent that's to cover utilities (£30 per week), can i deduct that before doing my calculation?

Thanks

Worried of Yorkshire

HappyMJ

It's either you claim all the expenses or you claim the £4,250 rent-a-room scheme allowance and no expenses.

You can claim half (assuming there is 2 of you..i.e you and the lodger) of the rent, half the council tax, half the bills (water, electric, gas, phone line and broadband, tv licence, sky), half of any repairs and maintenance done during the tax year etc...that might come to £5,200...it may not. You do the calculation and figure out which one is better to claim.

eviltoad

So, (sorry still a little fuzzy here), I charge him £100 a week.

Of which let's say £50 is for utilities, broadband, council tax etc. which comes to £2,600

Does that mean I pay tax on £2,600?

HappyMJ

You could and in that case you would choose to just pay the tax on the £950 which would be the better choice.

Do you have a mortgage? Any service charges? Provide any food? You can claim for providing meals, toilet paper, milk, tea, coffee etc whether they choose to eat them, use it or not...if you provide it you can claim it as an expense.

eviltoad

Hi HappyMJ thanks for the help here.

I presume I have to be able to provide invoices, bills and receipts etc to justify 50% or does an agreement with the tennants suffice?

HappyMJ

eviltoad wrote: »

Hi HappyMJ thanks for the help here.

I presume I have to be able to provide invoices, bills and receipts etc to justify 50% or does an agreement with the tennants suffice?

If there is just the two of you then HMRC isn't too bad with this so a verbal agreement to go 50/50 on everything will be just fine. If you have a partner then going thirds on everything would be fair. You will need the proof in case of investigation so keep copies of all your bills for several years.

eviltoad

Cheers,

A final thought, can I apply retrospectively for this rent-a-room thing taking it back to April 2014 or is it effective only from the current date.

If the latter I don't want to start it before April 2015 or I'll get £600 free and pay tax on all the rest.

Also when do I have to do this by for the current tax year?

booksurr

eviltoad wrote: »

A final thought, can I apply retrospectively for this rent-a-room thing taking it back to April 2014 or is it effective only from the current date.

If the latter I don't want to start it before April 2015 or I'll get £600 free and pay tax on all the rest.

Also when do I have to do this by for the current tax year?

The tax year runs from 6 April 2014 to 5 April 2015. You do not "apply" for rent a room (RAR) in the sense you use that word

For each tax year you are either using or not using the RAR. If using it then it applies for the whole year irrespective of when you stopped or started getting rent between those dates. If for the next tax year you decide not to use RAR and therefore use the "normal" method (ie rent - expenses = taxable profit) then you can choose to do so for the whole of that next year, ie you can switch between normal and RAR every year but the choice applies for a whole year

as for the normal method, using your figures at #3 above, it is not how much you charge for utilities, council tax etc it is what you pay out
if it genuinely costs you £50 per week for the lodgers share of those bills then you would be spending £433 per month in total on those bills (ie £50 lodger, £50 you = £100 x 52 week / 12 months = £433 pm) .

I think you are still confused by the calculation. It is not the share of income you decide relates to costs, your taxable profit from your lodger is total income received from the lodger (£100 per week) minus (total costs of bills paid by you x 50%) = your taxable profit.

eviltoad

I think i need to do a bit of maths on bills. thanks