Please see our interview with House of Multiple Occupation Tax Expert, Arthur Kemp, whose full contact details can be found at the bottom of the post:

1) First off, can you give our readers a bit of an insight into your background?
An accountant by profession: I held the position of UK Accounting Manager within a large international commercial organisation, with a multi billion pound portfolio and part of my role was to maximize tax saving.  Since finding PETPIG (Peterborough Property Investment Group) earlier this year, I have taken my tax knowledge and applied it to the HMO sector (I prefer the personal contact with real people).  Exact Business Services Ltd specialise in Capital Allowances and reducing or claiming back clients tax.

2) More and more investors have looked into taking on HMO properties – largely because of the significant cash-flow benefits they offer. What are the major differences in tax implications when compared to single let property ownership?
Largely the implications are the same – however, for a multi-let accommodation, there will be more costs incurred due to meeting fire regulations, licensing etc, but more income to be taxed against also.  HMO owners can claim Capital Allowances, whereas these cannot be claimed for single let unit. Even if the property was a HMO residence historically, you can claim.

3) If you owned a portfolio of HMO properties what would be the best way to manage your tax affairs (and ensure you are not overpaying!)?
I can’t stress enough the importance of good record management.  Having detailed files on all of your income and outgoings is essential if your tax advisor is to maximize your position. Having full visibility of your affairs enables advisors to take advantage of the most recent legislation. The legislation changes every year, so one should seek the most up to date advice, by engaging an expert.  We offer a free consultation by calling Exact Business Services Ltd on 01733 248 706, or 07595 398 781.

4) What would be the tax benefit of owning your HMO portfolio as a company – if any?
To answer this question there are many different factors to consider but the one major factor that is likely to attract property owners is the tax saving that can be made by trading through a Limited Company as opposed to becoming self employed.  The savings depend on profit and individual circumstances, but in general, one would pay less tax as a company.  There are some points to address:

• Accountancy fees will increase. You can add on around another £500 a year minimum in additional costs;
• More regulation – as well as the Inland Revenue and the VAT office you will now have to deal with Companies House (your accountant will take care of this for you usually) and face stiffer penalties for missing any deadlines;
• Your accounts will be visible by the general public (and of course your clients/customers). You will usually submit an abbreviated set of accounts to Companies House which does keep to a minimum the amount of information which is available for public record;
• The “Limited” part of a Limited Company means that the Company’s liability to any creditor is limited to the assets (cash, cars, equipment etc) that are in the Company. What this means is that should you get into financial difficulty with the Company, your personal assets (your house is usually the main one) will be safe.  The only exceptions to this are if you have given any personal guarantees for any lending the Company has (the bank will usually insist on this) or if you have taken more out of the Company than you were entitled to. This basically means that you have to keep enough money aside within the Company for your tax and VAT;
• Public and customer perception is that a Ltd Company is a more substantial entity than just being a sole trader. You may find that this leads to the chance of bigger assignments or higher rates

5) As a HMO property owner you are, by and large, entirely responsible for repairs, maintenance etc. – what ways are there to offset these expenses against your tax liability?
Firstly, keep records of absolutely everything and remember that costs incurred purely for the business can be used to offset taxable income.  As well as these, HMRC have a number of allowances which are essentially business expenses. One of these, Capital Allowances, can be used against any stream of income and is not restricted to your property profits.  Claiming Capital Allowances is our speciality, and these can be used against ALL income – not just property related ones.

6) What would be classed as a ‘HMO property expense’ in the eyes of the HMRC?
Not all business expenses are tax deductible, so it’s important to make sure you claim all that you can.
In general, if something you buy for your business is not a capital asset, you deduct its full cost when working out your taxable profits. This means you get immediate tax relief for the full amount.
Here are some key expenses you can claim and some you can’t:
Expenses you can claim…

• Salaries and benefits:- employees’ wages and redundancy payments, Employers’ National Insurance; insurance and pension benefits for employees; Any employee childcare provision you make; the cost of training employees.
• Dedicated business premises:- heating, lighting, cleaning, water rates, rent, business rates, general maintenance.
• If you work from home a proportion of costs are tax deductible such as:- lighting, heating, cleaning, insurance, mortgage interest, council tax, water rates;
• General maintenance:- the proportion should be based on the floor area or number of rooms used for business and the proportion of the time it is used for business (if it is not for exclusive use);
• Travel and accommodation:- running costs of a car or other vehicle – petrol, car tax, insurance, repairs and servicing. If you also use the car privately, you can claim only a proportion – usually the ratio of your business mileage to your total mileage (keep a log of business mileage for a representative period as well as all bills);
• Travel and accommodation on business trips and between different places of work can be claimed as well.

…and expenses you can’t

• Salaries and benefits:- if you are self-employed you cannot claim your own wages, salary or other money drawn from the business. Your own National Insurance contributions and income tax; your own pension costs, life insurance and health insurance.
• Premises:- You cannot claim the initial cost of buildings, alterations and improvements (such as extensions to house your business) – such work may qualify for annual investment allowance or capital allowances.
• A proportion of bills relating to private use of your home;
• Travel and accommodation:- travel between home and workplace, the cost of buying a vehicle (although this may qualify for capital allowances), meals (except a reasonable amount for breakfast and evening meals on overnight trips – there is no definition of ‘reasonable’ – you must keep receipts and may need to argue your case).  If you can divide an expense between business and personal cost (car running costs between business and personal travel, say), the business proportion is deductible. If the nature of the expense means it cannot be divided (such as the cost of a transatlantic flight), then no deduction is allowed.

7) We noticed in one of your recent blog updates that you saved HMO landlord clients over £200,000 in tax this week using a little known tax relief mechanism – can you discuss this a little further?
CAPITAL ALLOWANCES: these are a little known tax relief which has been in place since 1878. Only last year it was confirmed as being applicable to the Plant & Machinery assets of communal areas within HMO properties, by the HMRC.  Around 20% of the purchase price of your property, subject to survey, can be set-off against any income stream you have.  For more information visit www.hmotax.co.uk

8)There are many investors currently placing lease options on properties and converting them into HMOs – are there any tax implications that they should be aware of?
We are currently researching and liaising with HMRC regarding eligibility to claim Capital Allowances. We need to establish a number of factors here, prior to preparing any claim. Presently, we are only offering services to Freehold and long term Leasehold property owners.

9) Lastly, can you provide readers with some information about the services you offer at ‘HMO Tax’?
We are a niche tax consultancy, which specialise in Capital Allowances Tax relief.  We pride ourselves on providing a personal, professional, no nonsense tax relief service for HMO landlords.  HMOs qualify for Capital Allowances, which has been around since 1878, and can be claimed against ANY income stream, not just your rental premises.  This service allows, typically 20% of the purchase price of a HMO property to be set-off against any forms of income, the owners receive. There is no time restriction on claiming, and these allowances can be used to reclaim tax paid in the past, or your current year’s liability, or against future taxes.

Arthur Kemp - Exact Business Services Ltd – HMO Tax Consultants – www.hmotax.co.uk – T: 01733 248 706 - M: 07595 398 781