Introduction -renting property on contract
As a contractor or consultant, you may work far away from home. Working away could be a requirement of your current contract. Therefore, you may be planning on renting a house or flat on contract. While renting as a contractor, this could be a house or flat that is near your current worksite. Depending on the length of your engagement, you may need to rent away from home for a certain length of time. Therefore, if you are working away from home and are paying rent for a place whilst you conduct your business away from home, can you claim the costs as a business expense?
We have a separate guide that covers relocation costs. This covers the rules when you are moving to a new primary place of residence.
If you are thinking about contracting abroad, there are also certain things to consider.
Performing work away from home
As a UK contractor, you may sometimes need to travel for your contract work. As part of this, you will incur travel expenses. Depending on your work, the journey could be quite a commute on some occasions. If this is the case, it may prove to be more practical to stay over away overnight. When this is so, you will need to stay near your worksite while you work away from home.
It could be the case that you are away full time during the week. Therefore, a journey there and back each day may prove to be too much in terms of time. This could be so, especially given how busy the motorways can get during the working week. Therefore, you may prefer to stay closer to your worksite until the working week comes to a close.
Let us now consider renting property on contract and if you can claim the cost of renting a house or flat near your contract site. You might consider renting as a contractor if you have a fixed term of work for, say, six months or more. If you are working month to month and are not guaranteed to be at the work location for a fixed period, staying in a hotel or B&B would be the better option here.
Claiming for temporary accommodation
When you are working away, and the distance is too far to be travelling there and back each day. Therefore, you can claim your working away-from-home accommodation costs. Besides hotel or B&B expenses, you could also claim for renting a property while you work away. When renting as a contractor, you can also claim the utility costs for the house or flat. Furthermore, when renting property on contract, you can also claim for the food costs, such as eating out or eating at the property where you are staying.
When you claim for the property rental, utility bills and food, these are tax-deductible. Therefore, your business will save Corporation Tax on these costs. The claims will, however, be dependent on you meeting specific tests.
Based on the type of work that you do, you may also be able to claim your business clothing. However, there are also specific rules here on what you can claim.
Different choices of accommodation when you work away
When you are working away, you may have family and friends who live there. If this is the case, you could stay with them. This assumes that your family member or friend is happy to put you up for a few days.
However, the above may not be an option. In this case, you will need to investigate an alternative in terms of working away from home accommodation such as:
- Specialist contractor property rentals -you can find firms that specialise in this area on the internet.
Therefore, let us look into renting as a contractor. We can find out if your costs while staying away are allowable expenses.
Work away from home -what to consider?
Some factors should be taken into account when you consider if you can claim for your temporary work accommodation as an expense:
- First, the rental property you are staying in must not be your permanent place of residence. If a contractor lives in the property, they cannot claim this i.e., it should be a temporary residence that they only stay in while they are working at the worksite.
- Secondly, you must continue to have your primary residence whilst claiming temporary work accommodation.
- The worksite and property you are staying in should not be close to your permanent residence.
If you meet the above criteria, you can claim the cost of a rental property near your new work site.
Please note that HM Revenue & Customs (HMRC) could also potentially challenge the claim. If they did this, you must show that staying in temporary digs near your work site is more financially beneficial.
Comparing the costs
Your company may, at some point, undergo an HMRC enquiry. As part of this, you would need to try and show that the temporary accommodation expenses are necessary. You could, therefore, compare the monthly rent and utility bills against the mileage cost to get you to the work site. In addition, if you drive to the temporary worksite, you can claim business mileage expenses under HMRC’s approved rates.
The available rates for business mileage expenses when using your own vehicle to get to your work site are:
- 45 pence per mile for the first 10,000 miles travelled in the tax year.
- 25 pence for each mile after that.
On the other hand, you could compare the monthly rental costs against the cost of monthly rail costs to get you to the site. The total property rental and utility expenses should come to less than the mileage or rail costs. If it does, you would be able to demonstrate that this is more financially beneficial.
It is also important to show that there is no personal benefit. By this, we mean no personal benefit derived from renting the property for your contract. Therefore, you must demonstrate that you rent temporary accommodation purely for work reasons.
Furthermore, you would not be able to have friends or family staying there. If you did, personal usage/benefit would require reporting on form P11D.
Renting property on contract for work reasons
When you are away from home and renting a house or flat on contract, you should ensure it is fit for human habitation. Secondly, you must get the tenancy agreement in your company’s name to claim the cost through your business. The type of tenancy agreement will set out the terms of the lease. An assured shorthold tenancy is the most common tenancy agreement if you rent from a private landlord or letting agent.
The written agreement is a contract between the landlord and the tenant, setting out the terms of the tenancy. In this case, the tenant is your company. The agreement will set out all of the terms and conditions. Please note that it should contain:
- Details of the parties involved.
- Any deposit to be retained by the landlord.
- The address of the property.
- The start and end date of the tenancy.
- The obligations of both the tenant and landlord.
Both parties must be fully aware of what is included in the tenancy before signing an agreement. Usually, there will be a notice period of 30 days, however, you may be able to give notice at any time unless there is a break clause or the tenancy agreement says otherwise.
Therefore, if you claim your property rent as an expense, the rental agreement must be with your company rather than you personally. A tenancy deposit will also usually be required upfront. This will be repayable in full after the term of the agreement. This is assuming there are no damages to the property.
Renting property on contract -other considerations
In the UK, there is now in place a deposit protection scheme. Under this tenancy deposit scheme, the landlord must keep your deposit in a separate bank account. Additionally, under deposit protection schemes, the deposit will be refundable to you in the future when you eventually leave the property.
With regards to the associated utility costs, you should try and get these bills in your company’s name. Doing this will demonstrate that the costs are for your company rather than you.
It would also be advisable to ensure that your will company (rather than you personally) will pay:
- Energy bills to utility companies.
Therefore, you could set the rent and utility payments on your company’s bank account rather than your personal account.
If you can demonstrate and do all of the above, this will help back up your claim that these are legitimate business expenses via your company.
Claiming for food costs when you work away
In terms of food, you can claim your meals as subsistence expenses while you work away. This is as long as these are not `excessive.’
There are also HMRC standard meal allowances that are available. However, during your time away, you might usually eat at your rented property; if you do, you can claim your shopping bills.
As part of claiming your shopping bills, you should ensure that you do not include personal items on your receipts from the local supermarket. Therefore, it is important to be careful here; otherwise, you will need to separate out personal items when making claims for shopping bills through your company.
There is also a difference in how business meals and meals for entertainment are treated for tax purposes. In addition, all of your travelling type costs are subject to you not falling foul of the two-year rule.
Furthermore, when you stay away from home overnight for work reasons, you can also claim Personal Incidental Expenses (PIEs). These are allowable expenses when you stay away overnight.
Many contractors in all industries will stay away from home overnight for work reasons during the week.
Many who travel a fair distance will also prefer to rent a house or flat on contract rather than commuting. When you compare this cost to staying in a hotel or B&B guesthouse, the latter can cost much more.
If you follow the guidelines above, you can claim the temporary accommodation costs as travel expenses through your company. In turn, these will be tax-deductible expenses for your business. Therefore, your company will save 19% of these costs against its annual Corporation Tax bill.
Finally, when you can claim temporary accommodation costs through your company, your business will pick up the cost. To sum up, this is better than picking this up personally from your already taxed personal income.
Link to Contractor Advice UK group on