We’re often asked by our clients how they can best extract profits from their company without falling foul of the dreaded Tax Man.
Completing company accounts isn’t and should never be just about ticking the compliance box for the company, it should also be about the owner’s aspirations. That’s why during our regular reviews with our clients we look at where the business is, where the Director/Owner is, what they want to achieve and how we can help them reach those goals.
In this instalment we look at charging your company – Rent.
If you personally own a commercial or a residential building or land or even if you use part of your home for your business and it has exclusive use you may want to consider charging the company rent. It is advisable to draw up a lease agreement between you, the director and the company, you should also get any other shareholders to agree to the lease and rent payable. We would advise that you use a Commercial Solicitor to draw up the lease agreement to ensure that it is fit for purpose.
Withdrawing the funds from the company would be exactly the same as paying any other supplier and should be made to your private bank accounts, don’t forget however that if the property is jointly owned you will need to transfer their share to them. Alternatively, you can leave the amount in your Directors Current Account to take at a later date to help the company’s cash-flow. You still have to record the income on your personal tax return as at the date it was credited to your DCA.
How much rent you charge is down to you but remember to consider any expenses you incur such as loan interest, insurance and repairs. Any losses that arise from the property being rented can only be used to reduce tax on future profits from property and cannot be used against any other taxable income. It is advisable to get an accurate valuation for the rent to ensure transparency and a fair market rent is being charged. You also need to be aware that if you own the property personally and if you charge above the market value HMRC may argue that the excess is disguised remuneration and will insist that it is taxed under the PAYE scheme.
Something else you might want to consider and discuss with your accountant and financial advisor, your pension pot could own the property and this in itself has other tax savings that would benefit you in the long run.
If you have not had this conversation with your accountant we would be happy to have a FREE no obligation conversation with you, CONTACT US and we can arrange a video or telephone call at a convenient time for you.