During The Open here in Southport many locals decided to rent out part of their homes to take advantage of the influx of tourists. With that in mind, we thought we’d bring you an article on the rent-a-room scheme currently in place with HMRC. This article covers the legalities that come with renting out a room for such an event, or in general.
What is the Rent-a-Room Scheme?
Essentially the scheme allows for you to rent a room (or even an entire floor) of your home. Provided it’s furnished and only used for living, not for business, you don’t have to declare the money earned from this unless it exceeds a certain threshold.
This threshold is currently set at £7,500 per year.
Once you go over this threshold, you have a tax liability. However, there are two ways of working out what tax you owe. You can either look at it like a regular business which rents out a property and pay taxes on your profit (total income minus expenses). Alternatively, you can take your total revenue, minus your £7,500 allowance, and pay taxes on that whole amount. However, if you wish to use this method of working out what tax you owe you must inform HMRC first.
So which method should I use?
Without looking at your specific circumstances it’s difficult to say which method will work best for you. The goal here is to work out which method will end up costing you the least in taxes, which means doing a bit of assessment on your incomings and outgoings.
This is where K.A.Farr & Co. can help.
As Chartered Accountants, we have the expertise and experience necessary to ensure you’re in the best position possible from a tax assessment point of view, saving you money.
To find out more about the services we offer here, why not get in touch? You can call us on 01704 211 434 or fill in our online contact form, and we’ll get back to you!