11:07 AM, 25th November 2021, About 2 years ago 2
My daughter bought a house which she shares with two friends as her tenants. They pay below market value rents for the area, but this year the rental income will be above the £7,500 annual rent a room allowance.
She wants to opt for “Method B” (pay tax on gross rents to extent this exceeds £7,500, no allowance for expenses).
HMRC guidance HS223 says that she has to notify them before 31 January – but I can’t find any information on how to notify them.
Does anyone know if there is a specific form she needs to fill in or a section of HMRC she has to write to?
If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax:
You pay tax on your actual profit – your total receipts less any expenses and capital allowances.
You pay tax on your gross receipts over the Rent-a-Room limit – that is, your gross receipts minus £7,500 (or £3,750). You cannot deduct any expenses or capital allowances if you choose this method.
HMRC will automatically use your actual profit (Method A) to work out your tax.
If you want to pay tax using Method B, you need to tell HMRC within the time limit. You will continue to pay tax on your gross receipts over the Rent-a-Room limit until you tell HMRC that you want to change back to paying tax on your actual profit (Method A).
If you pay tax using Method B, this automatically stops if your rental income drops below the £7,500 (or £3,750) limit.
You must let HMRC know within one year from 31 January following the end of the tax year if you: