Rent a room expenses etc?

[jack1962]

What expenses can I use to determine the profit in the rent-a-room scheme as I can't seem to find any clear info on the HMRC site?

I think I have to include contributions to gas/electric/phone bills in the gross receipts but can I include those bills as an expense (so net effect is zero)?

If I can use insurance, factors fees, wear&tear (all students so no CT) then would anyone care to check my figures to confirm that method B is best for taxation purposes?

Hypothetically, if Gross receipts are £7500, Expenses are £800 then profit is £6700 . So excess of receipts is £6700-£4250 = £2450.
*using method A I would pay tax on £6750
*using method B I would pay tax on £2450
As taxable profit is less than £2500 can that be accounted for in PAYE? There is no other rental income.

[Telometer]

No expenses whatsoever may be deducted - none! The rent a room scheme is a simplification. So instead of having to justify deductible expenses you are allowed a flat rate deduction of £4,250.

Don't understand the rest of your post.

[jack1962]

Interesting, why does the HMRC website say that expenses can be deducted?

This is from HMRC website:

PIM4030 - Rent-a-room: receipts above exemption limit
Summary

The rent-a-room scheme provides two ways to work out the tax when receipts are above the exemption limit of £4,250 (or £2,125 if someone else also got income from the same property in the same period). The taxpayer can choose which of the following two methods is best for them.

Method A: paying tax on the profit they make from letting worked out in the normal way for a rental business (that is, rents received less expenses),

or

Method B: paying tax on the gross amount of their receipts (including receipts for any related services they provide) less the £4,250 (or £2,125) exemption limit.

Method A applies automatically unless the taxpayer tells their tax office within the time limit that they want method B - see below.

Once a taxpayer has elected for method B it continues to apply in the future until they tell their tax office they want method A. The taxpayer must tell their tax office within the time limit if they decide they no longer want method B to apply. They may want to do this where the taxable profit is less under method A or where expenses are more than the rents (so there is a loss).

For example, a taxpayer may have gross receipts of £5,000 but their expenses are £6,000 so they have a loss of £1,000. Unless they opt out of method B, they will still be taxed on the excess of the gross receipts of £5,000 over the exemption limit of £4,250; that is, the taxable profit from letting in their own home will be £750.

* PIM4040 says more about losses.
* PIM4050 explains the time limit rules.

Example where method B is better

Florence lets out a room in her own home for £100 a week. Nobody else lets a room in the house. Her gross receipts for the year are £5,200. She isn’t exempt from tax because her gross receipts exceed the exemption limit of £4,250. She has expenses of £1,000 so her profit is £4,200. The excess of her receipts over £4,250 is £950 (£5,200 less £4,250).

* Using method A, she pays tax on her actual profit of £4,200.
* Using method B, she pays tax on a profit of £950.

In Florence’s case, method B is better and she elects for it. The profit of £950 is included in Florence’s overall business computation if she has other rental business income from lettings outside her home. The profit of £950 will be the only rental business profit if Florence has no other letting income.
Example where method A is better

John lets out a room in his own home for a rent of £100 a week plus contributions to the heating and lighting. His total letting receipts for the year from letting the room are £5,200 rent plus £200 for light and heating = £5,400. He has expenses of £4,500 so his profit is £900. The excess of his gross receipts over £4,250 is £1,150 (£5,400 less £4,250).

* John pays tax on his actual profit of £900 if he uses method A.
* John pays tax on a profit of £1,150 if he uses method B.

In John’s case, method A is better. Therefore he either does not elect for method B or, if he has already done so, he tells his tax office that he no longer wants it to apply. The profit of £900 is included in John’s overall business computation if he has other rental business income from lettings outside his home. The profit of £900 will be the only rental business profit if John has no other letting income.


So, you see, I was basing my post on the examlples that hmrc give and simply trying to work out which option has less tax to pay.

[Telometer]

What expenses can I use to determine the profit in the rent-a-room scheme

None whatsoever. Any reference to deduction of expenses has nothing to do with the rent-a-room scheme.

[mind the gap]

Jack1962, I agree with Telometer that your post is confusing.

Please clarify : do you intend to rent one or more rooms of your own home to lodgers and continue to live there yourself, or do you plan to rent out rooms in another property you own to students, etc.,?