Rent a room scheme with expenses

silvercar

I know there is a 7,500 allowance for the rent a room scheme and this doesn’t allow for any expenses to be claimed separately.

What happens if rather than agree a rent of say £700 a month plus bills, you agree £700+£300 towards bills. Can the £700 be the rent to set against the 7,500 allowance or will hmrc insist that the £300 is also rental income? Prospective lodger is on a tight budget and would rather know exact outgoings, landlord is happy to agree to this provided it doesn’t saddle him with an unexpected tax bill.

Jeremy535897

See https://forums.moneysavingexpert.com/discussion/5591991/rent-a-room-scheme-charging-rent-inclusive-or-exclusive-of-bills/p1

I think if you put a separate meter in for the electricity used by the lodger, and the lodger was billed for and paid the costs relating to that meter, that would not be included, but it seems unlikely to be practical. See:
https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2022

saajan_12

silvercar said:

I know there is a 7,500 allowance for the rent a room scheme and this doesn’t allow for any expenses to be claimed separately.

What happens if rather than agree a rent of say £700 a month plus bills, you agree £700+£300 towards bills. Can the £700 be the rent to set against the 7,500 allowance or will hmrc insist that the £300 is also rental income? Prospective lodger is on a tight budget and would rather know exact outgoings, landlord is happy to agree to this provided it doesn’t saddle him with an unexpected tax bill.

No, the £300 counts too, in the same way as te £700.

Basically, under the RAR, you look at all receipts related to the lodging, including rent, bills, services etc. The point is to avoid having to account for expenses and just deduct a fixed £7,500 from receipts (floored at £0). So you can't get the allowance AND deduct bills expenses.

If you only want to account for rent and not monies going to bills, then you revert back to the standard accounting rules without the scheme, so rental income less expenses. This would leave you worse off unless expenses exceeded £7,500.