It’s common today for small companies that offer professional services to work from home. One question we are often asked is about what home office expenses can be claimed back on a limited company? In this short article, we have outlined your options.
HMRC Flat rate
HMRC allows £4 per week as a fixed home office expense, which can be claimed back without providing receipts and doesn’t include business phone calls. However, this won’t make much of a dent in the actual weekly expenses of running a home office, so there are other options.
Claiming for the cost of utilities such as electricity and heating
Instead of claiming the flat rate, you can get tax relief on some other main expenses so long as they’re not being used for personal use or are shared between business and personal (for example, a shared broadband line would not qualify). But you can claim the costs for heating and lighting the work area, and for business calls and, if you have one, a dedicated broadband network.
Working this out involves deciding what percentage of your home you use for your business, what percentage of your electricity/heating bill is business use, and how many hours a day you use your utilities for your business – so you could say, your workspace only needs to be heated for 50% of the working day.
Claiming rent and mortgage interest as a limited company director
HMRC is clear on their ruling about reclaiming rent or mortgage interest – and directors (including sole directors) are not allowed to make this an expense as they have been paid personally.
It is possible for limited company directors to charge their company ‘rent’; however, this income must be disclosed on your self-assessment form and a formal contract written up by a solicitor.
If you use a separate building on your premises – such as a dedicated garden office – you can claim back all the cost to maintain that, but if it has shared use as a personal space then what you can claim will be reduced to percentage of use for business.
What if I’m a sole trader thinking about becoming limited?
Our advice is to discuss the implications of your reclaimable home office expenses with a professional accountant. There are different rules around claiming home office expenses for sole traders and directors so it is important you are clear about this before you do anything.
There’s lots of useful information on HMRC’s website about claiming expenses, including this handy online tool to see what you can claim.
Alternatively, we’d be happy to discuss your options with you to ensure your business uses the most tax efficient method.
Please contact us at firstname.lastname@example.org and one of the team will be in touch.