If you’re a limited company, then there are two ways of working out your home office expenses – using HMRC’s flat rate amount or creating a rental agreement between you and your limited company.
Who can claim tax relief
You can claim tax relief if you have to work from home, for example because:
- your job requires you to live far away from your office.
- your employer does not have an office.
Who cannot claim tax relief?
You cannot claim tax relief if you choose to work from home. This includes if:
- your employment contract lets you work from home some or all of the time.
- you work from home because of coronavirus (COVID-19).
- your employer has an office, but you cannot go there sometimes because it’s full.
HMRC flat rate for limited companies
The easiest way to calculate your home office expenses is to use HMRC’s published allowance for the additional costs of running your business from home. You do not need to provide any supporting receipts to prove your expenses and you can claim £6 per week, which is an allowance of £312 for the 2022/23 tax year (No change in 2023/24). This can be included as an allowable expense alongside anything else you are claiming. Further, the good news is that HMRC does not treat this as a benefit in kind, which means you are not liable to pay any tax on the same while preparing your self-assessment return.
Renting your home office to your business
If you are running a limited company, you might be able to rent your personal workspace in your home to your limited company and claim that as an expense. So, as long as you run your business through your limited company, and follow the rules correctly, you may be able to claim more than £312 each year.
Rental agreement with your limited company
To claim a higher amount, you’ll need to set up a rental agreement between you (as the homeowner) and your limited company. If you do not have this formal agreement in place, then you risk HMRC classifying the rent you receive from your limited company as additional salary (from your limited company) which would be subject to Tax and National Insurance.
Drawing up a rental agreement is beneficial because your limited company can deduct rental payments from your company’s pre-tax profit, meaning that Corporation Tax will not be payable on these expenses.
When you prepare your rental agreement, you need to keep the following in mind:
- The amount of rent needs to be realistic in terms of commercial value and must be on an ‘arm’s length basis. This means that neither party should be disadvantaged by the agreement. So, you cannot calculate an amount of rent designed to benefit you as the individual owning your home or to affect the profitability of your limited company.
- You should not usually have a room in your home solely dedicated to your business as it can have additional implications when you come to sell your house.
- A formal rental agreement must be in place and signed on behalf of both parties.
- You should consider periodic reviews of the amount of rent paid (for instance an annual review).
Any income you receive as an individual must be included on your personal tax return (Self-Assessment) and any profit remaining after expenses will be subject to income tax at your normal rate, which may make this a less tax-efficient option for you personally.
Your rental agreement can be used to cover the proportional costs of the rented space. There is no definitive list of allowable expenses – what is allowable depends on the facts in each case. But you can include items such as mortgage payments, utilities, and council tax based on the proportion of the property used for business purposes.
Tips :
Use of home allowance
25 – 50 hours – £10
51 – 100 hours – £18
101+ hours – £26
You can use HMRC calculator to check, how much working from allowable you can claim.
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