Renting Multiple Units through Ltd Company

Alain_Delon

This may seem a straightforward Q, but if I form a limited company, and then rent multiple (say 10) units via said limited company, I assume the rent costs are legitimately deductible as costs of the ltd company?

CliveOfIndia

The devil is in the detail, but essentially yes.

But it's important to realise that any costs must be legitimately required as part of running the business.  You can't just rent out a unit (I'm assuming you mean an office space or storage space or similar?) for the sake of it, just to reduce your tax bill.  And if you're planning on sub-letting the space to someone else, that of course would represent an income for the company, which would need to be declared.

So yes - if these units represent a genuine cost for the company then you can claim the costs on your tax return.  But don't be tempted to try and "fiddle the books", you really don't want to be getting on the wrong side of the tax-man.

When I ran ran my own business years ago, my accountant said that for small businesses there is kind of an unwritten guideline that anything deemed "reasonable" tends to just get rubber-stamped by HMRC.  But if anything looks slightly outside of the ordinary, they'll likely investigate a bit deeper and ask to see proof.  For example, you could (at the time) claim something like £20-ish a day for meal allowances if you're living and working away from home with no problem.  He told me of one client of his who fancied splashing out, treated himself to an evening out at a posh hotel, claimed it was "entertaining clients".  As it was a substantial sum of money, HMRC asked him for proof, receipts, name of the client etc.  Needless to say, he soon regretted it.

Alain_Delon

Thanks @CliveOfIndia
I just heard back from my accountant and he concurs
I will be sub-letting the properties on Airbnb, so he states that tax will be due on the rental income

Minus

• Rent costs
• Utility bills
• Other qualifying expenses

CliveOfIndia

OK, that sounds eminently logical.  Basically it sounds like you're setting up a rental business, so in simple terms the rental income represents your gross income.  You can then deduct "legitimate operating expenses", leaving you with your net profit, on which you pay tax at the appropriate rate.

It's worth asking your accountant about taking dividends rather than a salary.  It's been a loooong time since I ran my business, so I wouldn't be at all surprised if the rules have changed significantly.  But basically you ended up paying less tax overall if you took only a small salary and took the rest in dividends.  But I must stress, that was a long time ago, so may not be applicable any more - but let your accountant advise you.

It's good to hear you have an accountant, he/she will be able to give you much more accurate and tailored advice than any random person on t'interweb.  A good accountant is worth their weight in gold - and don't forget, their fees are another legitimate business expense

But seriously, let your accountant guide you - they will know all the stuff you can legitimately claim for, which may include some things you haven't thought of.  And (only going by my personal experience), you sleep better at night knowing that you're not going to get a knock on the door from the tax-man due to some genuine mistake you've made.

And (this is only anecdotal), if your accounts are submitted by a qualified accountant who's officially registered to look after your accounts, HMRC are more inclined to take them at face value and rubber-stamp them.  Not least because the accountant isn't going to deliberately falsify anything, otherwise he'd face losing his licence quite aside from any other punishment he might receive.

DullGreyGuy

Alain_Delon said:

This may seem a straightforward Q, but if I form a limited company, and then rent multiple (say 10) units via said limited company, I assume the rent costs are legitimately deductible as costs of the ltd company?

Who owns the units?

Assuming you or other close relatives/shareholders dont then from a P&L perspective yes you deduct the rental as a business expense from the revenue you generate. 

Obviously you will have checked that the rental agreements allow sub-letting along with any local planning restrictions on short term rentals (Greater London has an annual cap of number of days).

CliveOfIndia said:

When I ran ran my own business years ago, my accountant said that for small businesses there is kind of an unwritten guideline that anything deemed "reasonable" tends to just get rubber-stamped by HMRC.  But if anything looks slightly outside of the ordinary, they'll likely investigate a bit deeper and ask to see proof.  For example, you could (at the time) claim something like £20-ish a day for meal allowances if you're living and working away from home with no problem.  He told me of one client of his who fancied splashing out, treated himself to an evening out at a posh hotel, claimed it was "entertaining clients".  As it was a substantial sum of money, HMRC asked him for proof, receipts, name of the client etc.  Needless to say, he soon regretted it.

Expenses aren't loaded in that level of detail with HMRC unless they choose to pick on you either as a random sample or because your numbers look odd compared to your peers etc. 

Rules tend to be a lot less generous these days... the "permanent place of work" type rules have been made worse where you can no longer claiming switching to a client 3 doors down from your last place was a reset of the clock on the 2 year rule. 

In my world of contracting there has always been clusters of contractors who've agreed to be each others replacement or "potential supplier invitee" to a meal etc if HMRC ever came knocking. However client or supplier entertainment generally isn't tax deductible but paying 20% corporation tax on the meal may be better than paying 40/45% tax on taking cash out to pay for the meal. 

Grumpy_chap

Alain_Delon said:

This may seem a straightforward Q, but if I form a limited company, and then rent multiple (say 10) units via said limited company, I assume the rent costs are legitimately deductible as costs of the ltd company?

Alain_Delon said:

Thanks @CliveOfIndia
I just heard back from my accountant and he concurs
I will be sub-letting the properties on Airbnb, so he states that tax will be due on the rental income

Minus

• Rent costs
• Utility bills
• Other qualifying expenses

Are you based in the UK?

What type of "units" are you referring to?
It reads like some kind of commercial premises, but most commercial premises are not suitable for converting to AirB'n'B - there may even be restrictions in planning or the head lease.

DullGreyGuy

Grumpy_chap said:

Alain_Delon said:

This may seem a straightforward Q, but if I form a limited company, and then rent multiple (say 10) units via said limited company, I assume the rent costs are legitimately deductible as costs of the ltd company?

Alain_Delon said:

Thanks @CliveOfIndia
I just heard back from my accountant and he concurs
I will be sub-letting the properties on Airbnb, so he states that tax will be due on the rental income

Minus

• Rent costs
• Utility bills
• Other qualifying expenses

Are you based in the UK?

What type of "units" are you referring to?
It reads like some kind of commercial premises, but most commercial premises are not suitable for converting to AirB'n'B - there may even be restrictions in planning or the head lease.

It's not that uncommon for flats to be called a unit... particularly if it's a building with flats, duplexes, maisonettes etc. Plenty of planning documents for sites etc talk of a building A having 50 units and building B made up of 85 units etc.

CliveOfIndia

DullGreyGuy said:

Expenses aren't loaded in that level of detail with HMRC unless they choose to pick on you either as a random sample or because your numbers look odd compared to your peers etc. 

Rules tend to be a lot less generous these days... the "permanent place of work" type rules have been made worse where you can no longer claiming switching to a client 3 doors down from your last place was a reset of the clock on the 2 year rule. 

In my world of contracting there has always been clusters of contractors who've agreed to be each others replacement or "potential supplier invitee" to a meal etc if HMRC ever came knocking. However client or supplier entertainment generally isn't tax deductible but paying 20% corporation tax on the meal may be better than paying 40/45% tax on taking cash out to pay for the meal. 

All very fair points, and one reason why I caveated my comments by saying this was a fair few years ago

Also why it makes so much sense to take advice directly from the accountant, since they've already got one - a good accountant will also be up-to-date with the seemingly never-ending changes to all the various rules, regulations and guidelines.

But your comments are, as always, balanced and sensible.

Alain_Delon

DullGreyGuy said:

Obviously you will have checked that the rental agreements allow sub-letting along with any local planning restrictions on short term rentals (Greater London has an annual cap of number of days).

Thanks all. Yes this business won't be having many lunches out!

Precise strategy is tbc but I'd be factually accurate in saying that the quoted text above is not HMRC's concern, but rather a private landlord or local council's concern, correct?

DullGreyGuy

Alain_Delon said:

DullGreyGuy said:

Obviously you will have checked that the rental agreements allow sub-letting along with any local planning restrictions on short term rentals (Greater London has an annual cap of number of days).

Thanks all. Yes this business won't be having many lunches out!

Precise strategy is tbc but I'd be factually accurate in saying that the quoted text above is not HMRC's concern, but rather a private landlord or local council's concern, correct?

Correct, HMRC won't give two hoots directly as to if you've breached the lettor's contract or planning permission. Indirectly they will as fines etc are typically not tax deductible 

CliveOfIndia said:

DullGreyGuy said:

Expenses aren't loaded in that level of detail with HMRC unless they choose to pick on you either as a random sample or because your numbers look odd compared to your peers etc. 

Rules tend to be a lot less generous these days... the "permanent place of work" type rules have been made worse where you can no longer claiming switching to a client 3 doors down from your last place was a reset of the clock on the 2 year rule. 

In my world of contracting there has always been clusters of contractors who've agreed to be each others replacement or "potential supplier invitee" to a meal etc if HMRC ever came knocking. However client or supplier entertainment generally isn't tax deductible but paying 20% corporation tax on the meal may be better than paying 40/45% tax on taking cash out to pay for the meal. 

All very fair points, and one reason why I caveated my comments by saying this was a fair few years ago

There are plenty of people out there currently running businesses that dont know what the current rules are, or dont care. Know plenty of people who sail much closer to the line (a former contractor had his wife and 3 kids as shareholders, he and one of his kids were the fee earners - their annual long weekend in Dubai had been put down as their AGM for years) but they give me comfort that there are much lower hanging fruit for HMRC to find.

Alain_Delon

Would be very very intrigued to read any cases of fines where the tenant was squeaky-clean in terms of payments, yet despite this the private landlord elected to take them to court.

There was that one case of the guy being fined £100k by Westminster council.

But then again, that was a council tenant profiteering off his council-owned flat. At the expense of a legit council tenant. And to a prolific extent, too.