When we are filing our self assessment tax return we need to make sure that we claim as much reliefs as we can when we are reporting our income to the HMRC in the self assessment tax return in order to minimise our tax bill and maximise our profits. As the deadline to submit the self assessment tax return for the tax year 2021-2022 is 31 Jan 2022 it's time that we start doing our homework on our income, the reliefs so we are ready to file the tax return on time and avoid any penalties and any extra costs.
Am I eligible for Rent a Room Relief
You will be eligible for room relief if you let a furnished room to a lodger. It is an important condition that the room is furnished. If it is not furnished you cannot rent a room scheme.
The room that you are renting should be part of your main home. If it is not your main home or if you are not in the UK when you are letting the room then you won't be eligible.
The Renting of the furnished room should not be used as an office to be used for rent a room scheme.
You can use this scheme if the letting of that furnished room amounts to a trade for example if you run bed and breakfast.
What is Rent a Room Scheme
Rent a room scheme is a scheme where you get a relief of £7500 on your taxable renting profits if you meet the above conditions. If you have a joint owner you will get the relief of £3750. This is an annual limit even if you are letting the accommodation for less than 12 months.
How Do I Work out My Taxes If the gross receipts are less than £7500
If the total gross receipts are less than £7500 then you will be exempt from paying any taxes. Please note that here we are talking about the gross receipts and not the profit.
How do I Work out My taxes if the gross receipts are more than £7500
You have 2 options to pay your taxes and you can choose whatever method you want to use depending on your individual circumstances. However, if you want to use the Rent a room Scheme you will have to tell HMRC on time. You can choose between the two options below:
Option 1:
- You pay tax on your normal taxable profit. This means that you will pay tax on your normal income which is calculated by deducting any expenses and capital allowances from your gross receipts (your total rent collected for the year)
Option 2:
- You can pay tax on your gross receipts above the rent a room limit which may be £7500 or £3750. In this case you cannot deduct any allowances or expenses.
If I made the loss, how can I use the loss in the future?
If a loss is created using option 1 method you can use it in the future even if you are using option 2 method to pay your taxes.
For more information on how to use loss, calculate rental profit, claim expenses and capital allowances contact our expert team of accountants in Croydon, London by calling on 020 8127 0728 or message us here
Source:https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2021