The Rent a Room scheme exempts the first £7,500 a year of rent from letting furnished accommodation in your main home (£3,750 each if two people share the income). Below the threshold the exemption is automatic; above it you file Self Assessment and choose between paying tax on the excess over £7,500 or on actual profit after expenses.
It covers lodgers and can cover bed-and-breakfast style lettings, but not rooms let as offices, or homes converted into separate flats. The scheme cannot be combined with the £1,000 property allowance on the same income. See what a lodger is worth after tax with the Rent a Room Calculator.
A lodger paying £700 a month brings in £8,400 a year, £900 over the threshold. Under the scheme you pay tax on just that £900 (£180 at basic rate) with zero expense records. Under normal rules you would tax the profit after actual costs instead, which only wins if your genuine costs exceed £7,500, rare for a single room in your own home.
