Working from home expenses for Limited Companies

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Over the past two years working from home has become the norm due to the Covid Pandemic; helping people achieve the ‘perfect’ work-life balance between job satisfaction and spending time with friends and family became and remained a priority. Some businesses have created a hybrid working environment allowing business owners and employees to split their time between home and the office. This has benefited businesses in several ways, such as reducing overhead costs and the retention of employees.

Limited company owners who work from home on a full-time or part-time basis can claim against allowable expenses, which will help you reduce your corporation tax bill and increase your income. The tax savings could be worth hundreds of pounds, making working from home a feasible option for you.

Our detailed guide offers an in-depth understanding of all the allowable expenses available to limited company owners.

  • HMRC flat-rate allowance (occasional remote working)
  • How to claim your job-related expenses if you work from home regularly
  • Signing a rental agreement with your business

Claiming against expenses is also applicable for employees that work from home. You do not have to be an owner of a limited company.

HMRC flat-rate allowance

HMRC allocates an allowance for individuals who administer work duties from home part-time. Funding will be capped at £6 a week or £26 a month (this has changed from the previous budget of £4 a week or £18 a month – change effective from 6th April 2020).

This table illustrates the changes in allowance

AllowanceBefore 6th April 2020After 6th April 2020
Weekly£4£6
Monthly£18£26
Yearly£216£312

Your Limited Company household expenses – No proof required

The number one rule of claiming business costs is that they must be “wholly and exclusively” for your Limited Company.

No justification will be necessary when claiming this allowance; however, if you want to claim proportionate expenses above the £6 a week or £26 a month cap, we will need proof, which we will cover next.

Claiming job-related expenses if working from home regularly

If you work from home regularly, costs will be higher. Therefore, the HMRC allowance will not be enough to cover your expenses. In this case, you have an option to claim against household expenses; however, you must be able to prove any claims you make. You need to maintain well-organised books and records of expenses, and copies of all the actual receipts

If HMRC requires accurate records for justification, they can reject your expense claim without these records. Hiring an accountant will ease all the pain of organising records and increase your chances of being granted your claim by the HMRC. 

You will need to calculate the extra costs incurred when working from home. To calculate additional costs is simple, though dual-purpose services such as water and gas need to be separated into two categories:  Personal and work expenses.

This can be calculated by

  • Sectioning the property into rooms
  • Divide the cost of water, electricity, and gas between each room you use for business purposes.
  • Calculate the balance of the expense payment, and this will give you the cost of running your home office

You cannot, however, claim on fixed costs. For example:

  • Council tax
  • Mortgage interest

The reason is straightforward, the amount paid will not change whether you work from home or the office. Hence no claim can be made on fixed costs.

Phone expenses 

Internet

Assume you run a one-person firm from home and don’t have a business broadband contract. In that instance, you can claim back the total cost of your home internet access plus a percentage of the line rental from the Company.

If you pay a monthly charge for your internet, you should claim the business share. Then, calculate the percentage you can claim based on your business and personal usage.

Make sure the company doesn’t pay your home broadband bill directly to the phone company because this is taxable income.

You should pay your Internet bill and then reclaim the business usage from the Company.

If you have a business broadband contract, ensure it is in the Company’s name. The corporation should pay the phone company directly. The Company can then deduct the total cost of the broadband line rental and commercial use.

Telephone

A contractual agreement between you and the service provider must be in place to be able to claim total tax on telephonic bills. A mobile contract in your business name is considered a business expense, and you will be able to claim the entire amount on your return. If any personal calls are made on the business line, it is considered tax free, and there will be no need for reporting on your P11D

A disadvantage of signing a phone contract under your trading name is that you will most likely have to use one of your phone provider’s business tariffs, which may be more expensive than the equivalent personal tariff.

Signing a rental agreement with your business

This option requires a rental agreement between you and your business. The deal needs to be in the form of a commercial document which stipulates the rental value that is payable for the use of your property. A rental agent is advised in this instance to provide a rent valuation. This will then give you a reference when calculating what the space is worth. Tax can be claimed on the rental payments of the property, though you will need to pay the rental income and declare this via the self-assessment process. Consult with a local estate agent to give you a proper rent valuation.

Guidelines for rental agreements

  • The rental agreement will need to be based on the current going rate for the rent charged.
  • A professional opinion is advised to ensure the contract is drafted satisfactory, resulting in you being able to justify the amounts.
  • If your insurance company has rules and regulations in place, working from your home may breach these rules and regulations.
  • The property landlord or mortgage provider will need to provide a permit for you to rent out a space on the property for business purposes. This is also the case if you do not own the property outright
  • The amount paid needs to be the current commercial rate.

While your limited Company will save tax on the rental payments, you will owe tax on the rent when you file your yearly self-assessment return. If you co-own a home, you must split the rent according to how much each individual owns.

You can discuss the licencing options with us as your expert Accountancy firm in London, considering all the factors above to ensure you don’t unintentionally end up being landed with an unexpected tax bill further down the line.

Claiming for more than one room

If you would like to claim for more than one room for business, you will need to provide an exception reason as well as provide evidence that the primary use of the room is for business

An example would be a videographer who has an office in one room and a recording studio.

Suppose more than one room is used for business. Detailed calculations need to be made and provided. The infographic below breaks down how to calculate the above 

working-from-home-expenses-for-limited-companies-infographic

The above method cannot be used to calculate broadband and telephone costs per room

Helpful tip – You can claim on home repairs if related to your line of work/business

How To Claim Expenses If You Work from Home As An Employee For Your Own Company

If you work from home through your limited company as an employee, your employer(your own company)can pay you (as an employee) £6 a week or £26 a month to cover expenses and obtain reimbursement through the HMRC

It is essential to remember that tax relief cannot be claimed if you have volunteered to work from home or chose to work from home. If you are unsure, you can find the latest details on what expenses you can claim the via GOV UK website.

Conclusion

Being tax compliant when running a business is very important. Moreover, people also like generating more income than they already were. Taking advantage of claiming the expense while running a limited company from home will do this job comfortably for you. When calculating the allowable costs that could be claimed for your limited Company, it is vital to remember that all the expenses made must solely be used for business purposes. 

There are many difficulties incurred by Limited company owners working from home compared to sole- traders; it is advisable to hire an accountant.

We are an expert team of professional accountants in London delivering specialist financial advice and support to all small businesses, contractors and freelancers looking for or currently working through a limited company. We will complete and submit everything from annual accounts, Corporation Tax returns and offsetting expenses to declaring dividends.

We do everything you would expect an accountant to do by providing you and your business with a fully rounded limited company accountancy service.