Rent A Room Scheme

notional

Thanks for your suggestions.

booksurr

using the "normal method" rather than simply claiming RAR means that YOU as the self assessing taxpayer have to come up with your own reasonable method for apportioning the costs. There is no guidance because there is no set method, it is expected that accountants will have the knowledge of how to undertake costings and therefore will be asked to advise a taxpayer who is "lost". I can state from experience that 50/50 will not be accepted

HappyMJ has identified the most commonly used method, their floorspace v rest of the building

you do understand that numbers in HMRC examples are just made up ones and it would be more typical to have a mortgaged property than a rental property hence "£4,500"?

if you do decide to press ahead with the normal method then you must learn the difference between revenue costs and capital costs. One of the items you list in #1 is a capital item so disallowed

CobaltBlue_2

OP - I would just drop the rent charged to £1 below the current threshold.
You can always increase next tax year.

booksurr

CobaltBlue wrote: »

OP - I would just drop the rent charged to £1 below the current threshold.

nonsense!!!

at the moment OP gets £4,800 and would pay 20% tax on the excess £550 over the allowance meaning he will pay £110 in tax so he will trouser £4,690

if he follows your "advice" he will trouser 4,224, so he will have £466 less. Hardly a sensible idea

Kynthia

The RAR scheme is a method designed to be simple for most people to use. It also usually is the method that means you pay less tax if you only have one lodger. Depending on the level of rent and expenses, the expenses method generally becomes better when people have two or more lodgers.

The expenses method is designed for you to deduct expenses you incur in taking in a lodger, or the lodger's share of expenses. You know that your rent for the whole property is neither of these. Expenses you might incur due to having a lodger are the cost of furnishing and decorating the room, advertising the room, etc. A share of expenses could be percentage of your rent based on the lodger's one room as a percentage of all of the rooms in your property, then perhaps half the council tax and utilities as there would be two of you living there. Try reading some blogs about having lodger's for more advice.

booksurr

Kynthia wrote: »

The RAR scheme is a method designed to be simple for most people to use. It also usually is the method that means you pay less tax if you only have one lodger. Depending on the level of rent and expenses, the expenses method generally becomes better when people have two or more lodgers.

The expenses method is designed for you to deduct expenses you incur in taking in a lodger, or the lodger's share of expenses. You know that your rent for the whole property is neither of these. Expenses you might incur due to having a lodger are the cost of furnishing and decorating the room, advertising the room, etc. A share of expenses could be percentage of your rent based on the lodger's one room as a percentage of all of the rooms in your property, then perhaps half the council tax and utilities as there would be two of you living there. Try reading some blogs about having lodger's for more advice.

not quite:
- an apportionment of the rent between the business use (the space let) and the non business use (space occupied by OP) is perfectly acceptable. Just the same as apportioning the mortgage interest is acceptable. The key is the tax law specification of "wholly and exclusively" business related. The rent related to the let space is thus business related - this is why accountants know how to apportion costs based on having studied tax law!

- the cost of furnishing would be a capital item

CobaltBlue_2

Booksurr

Very true. But OP is not running a business. He is sharing his home with someone.
I don't think the extra money is worth all the hassle and paperwork.
OP would also be putting himself on HMRC "radar".

He hasn't completed a tax return before (by the sounds of it).
I would rather gain some goodwill from my flatmate / lodger and avoid paying any tax.

HappyMJ

CobaltBlue wrote: »

Booksurr

Very true. But OP is not running a business. He is sharing his home with someone.
I don't think the extra money is worth all the hassle and paperwork.
OP would also be putting himself on HMRC "radar".

He hasn't completed a tax return before (by the sounds of it).
I would rather gain some goodwill from my flatmate / lodger and avoid paying any tax.

The OP is running a business. It's a lettings business that provides a furnished room.

The RAR scheme is the HMRC allowing the OP to not have to detailed expense records. The OP must still keep a record of every payment received and pay tax on any money received in excess of the RAR allowance.

katejo

notional wrote: »

I am renting out a room in my flat, which I rent from a Housing Association. (Yes I DO have the HA's permission to have a lodger!). The annual rent paid by my lodger is £4800, which is over the £4250 tax free limit on the Rent A Room scheme, but less than I pay in rent to the HA. The lodger does not have any bills in their name, ie their £4800 includes everything.

I could choose to be in the RAR scheme this year, and just take the hit and pay the tax on the £550 excess, but I would like to try not to. Does anyone know what the allowable expenses are if I choose to opt out of the scheme? Eg could I offset the whole of my rent to the HA, which would produce a clear loss? Or would I need to split the rent in half as there are two of us living here, and add on anything else I can think of, eg half the gas, electric bills etc, a mattress I bought etc?

There is no guidance anywhere I can find on HMRC's websites about what you are allowed to offset. Has anyone opted out of RAR? Thanks

I really don't think that you will gain anything by dropping RAR. i doubt that you can offset any of your rent. If you paid a mortgage, you could only offset the interest not the capital. i use RAR and have just paid my tax on the rental income in excess of the RAR for 2014-2015. My excess was slightly higher than yours but I only had to pay £127 (standard rate tax payer).

katejo

booksurr wrote: »

nonsense!!!

at the moment OP gets £4,800 and would pay 20% tax on the excess £550 over the allowance meaning he will pay £110 in tax so he will trouser £4,690

if he follows your "advice" he will trouser 4,224, so he will have £466 less. Hardly a sensible idea

It would however save the time and money (phone bill) wasted on trying to ring the tax office to declare just 1 small excess over the RAR :rotfl: I got a higher phone bill last month due to being kept on hold for an extended period.