Homeowners facing a tough time in the credit crunch can open their doors to a lodger and pocket £4,250 a year tax-free.

This extra £81-a-week cash could make the difference between staying in the black or going bust if they are feeling the pinch from rising prices.

Under the Rent-a-Room scheme, a taxpayer pays no income tax on profits from renting furnished accommodation in their home, providing the gross money received before expenses is £4,250 or less.

The downside is homeowners cannot set off any expenses against the income unless they opt to have the rent tax treated as normal income.

The gross includes rent and payments, like meals, cleaning or laundry. The £4,250 limit may be halved to £2,125 each if the home is jointly owned with a spouse or partner.

The rent-a-room scheme does not apply to rooms let as an office or for other business purposes.

Rent-a-room applies to people who let a room in a home they rent as well as to people who own their homes.

It isn’t relevant for tax but prospective landlords may want to check whether:

• Any lease allows them to take in a lodger

• The mortgage lender, if any, minds them taking in a lodger

• Any home insurance covers the change of circumstances

For full details of the Rent-A-Room Scheme, download Help sheet IR223 from the HMRC web site.