rent a room scheme - charging rent inclusive or exclusive of bills

orcocan

i understand that any money paid to me constitutes income, fair enough

i still don't understand why if i charge rent exclusive of bills and he pays some of those bills directly (not to me) i still have to pay tax on that, that does not make any sense

Yes you have to pay tax on the £20 because that is £20 less of your own money you have had to pay for the water bill.

again that is ridiculous as I would not be paying for water he used and that would not be charged if he wasn't there!

Your gross receipts include:

rental income (before expenses)
any amounts you receive for meals, goods and services, such as cleaning or laundry
any ‘balancing charges’

where does this mention contribution to bills??

orcocan

booksurr wrote: »

you must have misunderstood what your wife said because that is 100% wrong

could you please tell me the source for this comment? I can't find any backing to what you say. I'd like to get to the bottom of this

Guest101

orcocan wrote: »

i understand that any money paid to me constitutes income, fair enough

i still don't understand why if i charge rent exclusive of bills and he pays some of those bills directly (not to me) i still have to pay tax on that, that does not make any sense



again that is ridiculous as I would not be paying for water he used and that would not be charged if he wasn't there!



where does this mention contribution to bills??

It's simple.


You can use RAR for upto £7500 of all payments made to you or to the household by your lodger. If you go over this you cannot use RAR at all.


You can then self assess for the full amount.


It's really simple!

MyOnlyPost

orcocan wrote: »

again that is ridiculous as I would not be paying for water he used and that would not be charged if he wasn't there!

If you are splitting a £40 bill with your lodger surely that is water rates rather than a water meter (based on my local authority at least) Or do you mean you currently pay £20 on a water meter and you expect that amount to double?

Lots of your bills will include charges not related to useage, standing charge, line rental and more which you would have to pay on your own. Generally 2 people do not double the useage of 1 on most household bills.

booksurr

orcocan wrote: »

i understand that any money paid to me constitutes income, fair enough

orcocan wrote: »

could you please tell me the source for this comment? I can't find any backing to what you say. I'd like to get to the bottom of this

you almost came close to understand it...

the rent a room scheme is a set of exceptions to the normal way in which rental profits are calculated. Under the normal method all receipts are treated as income and all expenses are deducted from the income to arrive at the taxable profit. The RAR exception is to allow one to choose not to keep records of expenses. The trade off is with no expenses, you cannot deduct anything. Therefore all components of "receipts" are part of your "total rent-a-room amount"

RAR is set out in Part 7 of the Income Tax (Trading and Other Income) Act 2005 (normally written as ITTOI05 ) and you need to read sections 784 - 802 of the act.
http://www.legislation.gov.uk/ukpga/2005/5

please understand "an individual has rent-a-room receipts for a tax year if— (a) the receipts are in respect of the use of furnished accommodation" means anything to do with the use of the accommodation. Patently bills arise through the use, it is not just what you think of as "rent".

if you want it black and white read section 797 since what you propose falls into the definition of UK property income
(2) In calculating those profits for the tax year—
(a) the Part 3 rent-a-room receipts for the tax year are brought into account only in calculating the profits of the business for the tax year, and
(b) any expenses associated with those receipts are not brought into account


please note very carefully, if you put any bills into the name of the lodger and/or get the lodger to pay directly to the utility company that is tax fraud if you then claim the RAR as you are effectively claiming a deduction since it is an expense that you as the householder would normally pay yourself


as you will doubtless not agree with any of the above I suggest you contact HMRC directly and put your various scenarios to them. They will confirm you cannot deduct any expenses and must include all income if you want to claim the tax free amount. Get their response in writing though as their call centre staff have limited detailed knowledge and a verbal response from such people may not be correct.

anselld

Guest101 wrote: »

You can use RAR for upto £7500 of all payments made to you or to the household by your lodger. If you go over this you cannot use RAR at all.

You can still use RAR if income exceeds £7500, but you pay tax on the excess.

orcocan

Guest101 wrote: »

It's simple.


You can use RAR for upto £7500 of all payments made to you or to the household by your lodger. If you go over this you cannot use RAR at all.


You can then self assess for the full amount.


It's really simple!

So simple that you got it completely wrong