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Self-employed and bedroom tax. Room use and human rights issues?
There’s been some comment about the meaning of a government spokesman’s pronouncements in the Lords about self-employed tenants and the bedroom tax. I think there’s no question of a ‘loophole’ but there is a room use argument. More interestingly I think it opens up a human rights and equality issue for people who are affected by the bedroom tax. I’ve put up a more detailed piece on my blog at http://blog.cix.co.uk/gmorgan
The usual approach for private tenants is to allow the difference between the HB eligible rent and the full rent as a business expense.
In a bedroom tax case the Council might take the view that the room is a bedroom when it comes to fixing the eligible rent, but for means-testing purposes the cost of that bedroom is an expense wholly and exclusively incurred for business purposes, which might seem slightly strained, but it would mean that private and public tenants are treated consistently: HB will cover some of your rent directly, the rest we can offset against your earnings. Arithmetically it’s a better outcome to have the eligible rent included and keep the higher income; but at least some allowance is made if the bedroom tax is allowed as an expense. It would be perverse to disallow the room in the eligible rent and disallow it as a business expense as well I think. The logic should be that you are only staying in that dwelling and not moving somewhere smaller because you need the extra space for your business, therefore it is wholly and exclusively a business expense
Nice article Gareth and, as you say, there is a world of difference between working from home and running a business from home. However, I would caution anyone contemplating this to get specialist housing advice as, irrespective of whether the landlord would allow it or not, if you fall foul of s1(2) of the Housing Act 1988 you could lose your assured tenancy status along with the security of tenure that goes with it. However, see s23(4) of the Landlord and Tenant Act 1954, particularly its relation to a breach of a clause in an assured tenancy.
The usual approach for private tenants is to allow the difference between the HB eligible rent and the full rent as a business expense.
I hadn’t thought about this side of things Peter, thanks. This is going to be different in Universal Credit AAMOI where there will be flat rate allowances for use of the home based on the number of hours usage per month, from zero for less than 25 hours per month to £26 for over 100 hours of use.
A very helpful article Gareth - many thanks. A question though - if the tenant wins the argument that a room is not a bedroom for the bedroom tax because it is used for business purposes, is there a risk that the extra room will cease to be part of the ‘dwelling (for s 137(1) of SSCBA 1982) and be excluded from the calculation of eligible rent under 12B(3) of the HB regs? I’d be very grateful for views as this is relevant to an application for permission to appeal to the Upper tribunal. many thanks.
In some cases that might be the logical conclusion, but then there would have to be a corresponding deduction from the earnings. If the room has had something done to it that renders it no longer suitable for any kind of domestic use at all it could be argued that it ceases to be part of the dwelling.
The permutations are:
1. Room not a bedroom, but still part of the dwelling so full eligible rent allowed; deduction from earnings for part of rent because it is a business expense. The most advantageous outcome but somewhat counter-intuitive and rather unlikely I should think
2. Room not a bedroom, but still part of dwelling so full eligible rent allowed. No deduction from earnings because there is no business expense. The most advantageous of the realistic options
3. Room is still a bedroom when all’s said and done even though you have put a desk in it, so the bedroom tax applies. But the bedroom tax will be deducted from your earnings as a business expense. This is quite likely to happen when it would only be a couple of minutes’ work to restore the space to use as a bedroom. Slightly less advantageous than option 2, because you claw back 65% on the roundabouts of what you lost on the swings.
4. Room is a bedroom, so the bedroom tax applies, but no business expense because yu have not incurred the extra rent for business purposes: you just happened to have a spare bedroom, if you packed up work tomorrow the rent would not change. Harsh, but I can see how a Council might argue that way.
5. Room is not a bedroom, in fact it is no longer part of your home at all because it has been filled with specialist machinery and is never used for any purpose other than work. Outcome is similar to Option 3: the Council will identify an amount that it considers reasonable to deduct from the total rent in order to leave an HB eligible rent for the dwelling only; a corresponding deduction will be made from the income. But as nevip says, you really are playing a dangerous game with your tenancy if you do this.
6. As 5, but no deduction from income. Not seriously likely to happen.
The two questions whether the room is a bedroom or some other kind of room, and whether it is part of the dwelling or not will depend on the facts of each case. But I think the not-part-of-the-dwelling option will be rare, it seems to me to imply some structural separation or at least something that renders the room incapable of being enjoyed domestically.
The two options that involve an income deduction work out to the claimant’s disadvantage if they would have made a loss anyway: then they don’t get their 65% back on the roundabouts.