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Sam, Accountant
Category: Tax
Satisfied Customers: 14199
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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What are the tax implications of us offering someone (who is

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What are the tax implications of us offering someone (who is self employed) reduced rent in a flat that we built ourselves (e.g, no purchase price) in exchange for childcare?
Hi Thanks for your question I am afraid as this would have a monetary value - it would have to be declared by the individual that he received in essence payment in kind in lieu of lesser rent - If they then in turn provide you with childcare - then this is the income they would treat this payment kind as replacing. The individual who pays out for the childcare has no recourse through their income (although this would assist any claim for tax credits if the child carer was registered) Let me know if you need further information Thanks Sam
Customer: replied 2 years ago.
Sorry this still isn't clear!So we are looking at someone living in flat that we own who is self employed (but as an actor not as a childcarer) i.e. would not be employed by us. In exchange for living in our flat at a reduced rate, they would help out with childcare.Say the rent is £1,000 per month but the commercial rent is £1,500 per month, what needs to be declared and by who? and how does the purchase price feed into this (I have read up a bit about this)Thanks,
Hi They are getting a reduced rent from you for providing services - so they must declare the rents they are saving which are clearly in exchange for child care.So they declare the fact they will have an income (through exchange/batering of services) which has a cost -The fact they are not a child carer as a main source of income matters not I am afraid.So the actor who provides this childcare must declare the fact that in exchange for the child care they provide you - they are in essence received pay of £500 (which is the amount of rent they are saving) as there is an exchange of services here. You then declare the rental income that would ACTUALLY be received per month which is £1500 - as this is what you would have charged had you not had child care provided, and as the child care is not an allowable expense you can offset against rental income - thats why you declare £1500 per month gross rent to HMRC If you just happen to let them have a reduced rent - then fine - but you are both benefiting from this arrangement so the actor must declare £500 income a month for the exchange of service. The purcahse price has no bearing as this is not a benefit in kind (on which rate able value is calculated for the charge ) this only applies to reduced rents through property and employment - which this is not. I hope that is clearer? Let me know if you wish me to expand further Thanks Sam
Customer: replied 2 years ago.
We're getting there - thanks for the further clarification. If I have understood this correctly, the tax that we would pay (as owners of the flat) would be the tax on the income of flat which is £1,500 per month.The actor would pay tax based on a £500 income per month. Would we, however, be able to deduct what we would pay for childcare from that though so say we would normally pay £15 per hour for childcare or is that already reflected in the rent reduction?If we were to employ the actor as an employee, then it sounds like it would be treated as a benefit in kind -what would this mean in tax terms if they pay £1000 per month, the commercial rent is £1,500 and we built the flat e.g., it has no purchase price?Thanks
Hi You are very welcome for the further clarification Yes correct re the rental income position for you as ownersYes correct that the actor would need to declare £500 income per monthNo - you cannot claim this as an expense against the rental income and does not arise through the direct rentaing out of the property (has to be a relevant expense to be allowable) I am not sure that is what you are asking - so please expand if this does not answer your question If you employed the actor as a child minder - then you would operate PAYE against his income (so deduct tax and National Insurance and you would also pay Employer National Insurance (Class 1) against the £500 a monthBenefit in kind would not come into play as its not an employment WITH reduced rent - the reduced rent becomes the income as provided in exchange for services (the child minding)The time this applies is when an individual is say employed as a gardener and the employer says - we have a cottage next door which you can live in at a reduced rent if you want to (so there is no need for the employee to be on site - its merely a convenience) then the employee is liable to tax on his salary (wages) AND also has a consideration for the rents he is saving - which would fall under the benefit in kind regime as its just a rent reduction - it does not replace salary wage and no services are given in exchange for that reduced rental on the cottage - but this then takes into account the rateable value and the rents reduced NOT any purchase price. The purcahse price (or acquisition price) is taken into account for capital gain purposes only (or in this case the value of the land less and the cost to build deducted from any future sale price) You are mixing a few tax regimes up in your quest for information! So I am gald I am able to unravel the different beliefs and impressions you have been left with Let me know if I can assist further Thanks Sam The purchse price has no bearing at all in this sirtuation -as alraedy advsied
Customer: replied 2 years ago.
OK so it looks like the choice we have is to:a) do what we currently do which is to pay ca. £15k per annum on childcare and get ca. £18k per annum in income on our flat and pay tax on the £18k on the flat
b) exchange childcare for reduced rent, so get say £12k per annum in income but pay tax on £18kThis looks like a no brainer for option b) unless I am missing something?
Hi Thanks for your response No - its not an either/ or situationYour rental declaration gross to HMRC will be £18K regardless of whether you choose option A or B I do not see where you think the exchange for reduced rent for child care alters the rental income figure HMRC HAVE to consider Thanks Sam
Customer: replied 2 years ago.
Yes but under option a) we are also paying out £15k per year on childcare (to someone who is not living in our flat)! - sorry I hadn't made this very clear.
Hi But that has no impact on the tax position or the declaration of the rental income - which is all I can advsie on - but I agree you personally are better off (with less child care to pay out of your pocket!) Do let me know if I can assist further, or it would be very much appreciated if you could rate the level of service you feel I have provided - or click accept Thanks Sam
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