How to Start & Run a B&B BandBED2eBook-1 | Page 67

Rent a Room scheme and running a business
If you run a bed and breakfast business or a guest house, or provide catering and
cleaning services as part of a letting business, the Rent a Room scheme can still apply
to you. You will need to complete the relevant parts of the self-employment pages of
your Self Assessment tax return.
How to opt in or out of the scheme
If you want to opt in, if you don't normally receive a tax return and your receipts are
below the tax-free thresholds for the scheme, the tax exemption is automatic so you
don't need to do anything. If you wish to opt in and your receipts are above the tax-free
threshold, you must tell your Tax Office - you can do this by completing a tax return and
claiming the allowance
If you want to opt out, just complete a tax return within the usual deadline and declare
the relevant lettings income and expenses on the property pages
There will be are up to date links about the Rent a Room scheme on our website at
www.howtorunabandb.com – or join the Bed and Breakfast Association (see
www.bandbassociation.org) for more information, forms and links.
If your B&B business will be on a significant scale and will be growing, you may well
decide (as we did) that the Rent a Room scheme is not tax-effective for you. In that
case, the alternative is to account for the business normally as a “sole trader”. To do
this you have to register your B&B business with your local tax office – you need to ring
them up with your tax reference and NI number, and give them the date your B&B
business is due to start, or when it started if it has started already (but beware: you
cannot register more than three months after your business has started, on pain of a
£100 fine).
You then simply produce accounts for your B&B based on your actual income and
costs, and submit them to HMRC as part of your tax return, by the 31 January following
the end of each tax year (so, for the tax year 6 April 2010 to 5 April 2011, you must
submit your tax return by 31 January 2012 with your remittance for the expected tax
due). You will be charged tax on your profits, after taking into account any portion of
your personal tax allowances which have not been used against other employment.
Although it will add to your costs, it is advisable (at least in your first year) to use an
accountant to prepare your accounts and submit your tax return. Choose a friendly
local accountant, not a big-name firm (which would be unnecessarily expensive), and
ask them to give you a quote in advance.
A very important word of advice here: be obsessive about keeping your receipts and
invoices for every single B&B cost. These are your direct business costs, so every £1
spent on eggs, sausages or laundry is £1 taken off your taxable profits.
The general “overheads” – ie the costs of gas, electricity, water rates, council tax (or
business rates), and mortgage or property financing costs etc. – should be allocated as
business costs on a pro-rata basis to the floor area of your premises devoted to the B&B.
If 30% of the property is guest bedrooms, guest breakfast room and other guest areas,
then 30% of the property overheads will be applied in your B&B accounts as a business
cost.