Most Small Business owners and Contractors spend a fair amount of time working from home. In this post we explain the costs you can put through your Limited Company when doing this. Be warned the answers are generally disappointing.
Scale Rate of £4 a week
For Limited Company employees (such as Company Directors) HMRC allows you to claim a modest tax deductible expense for the costs incurred from working at home. This rate is currently £4 per week (ie. £208 per year).
This is the most common expense but there are some other considerations:
Buying Office Furniture through the Company
If you buy some equipment for your office that is moveable and clearly identifiable as property of the Company (as opposed to property of you) then you can buy the equipment through your Limited Company. An example would be a desk or a filing cabinet for your office.
What you can’t charge to the Company is home improvements. If you convert a garage to an office you couldn’t put these costs through your company. If you did so you would be saying the office/garage is now an asset of the Company.
You can see clearly how this doesn’t really make any sense. If you sold your house, it would mean you would be trying to sell an asset you don’t own (because your company owns it) or if the company went bankrupt it’s creditors would have a right to take ownership of your office/garage. So keep such purchases to simple moveable items. If you were to start renting an office from a third party and would move these items into it then it’s probably fair to assume they are reasonable business assets.
Marginal Cost Claims
If you can prove to HMRC that you have suffered additional costs as a result from working at home then these extra costs may also be claimed. Of course these claims only apply to costs incurred only as a result of working from home.
In practice proving costs like heating or electricity have increased due to working from home can be very difficult. You would have to prepare analysis showing the Kwh usage has increased before and after working from home. In most cases this is just not practical or worthwhile.
Leasing a room out to your company
One final option is officially having a room in your house dedicated as an office during working hours and leasing out the room to the company. This would have to be done officially with a signed lease agreement and could breach the terms of your rental contract or mortgage terms.
You would have to pay a personal tax on the money you charge for leasing out the room to the company. However you can allocate a portion of your home costs to the room you lease out and claim those as expenses in this case. There is a special formula in place to calculate this cost (Water bills + Electricity + Gas + Council tax + Rent/Mortgage interest + Home Insurance) / Number of rooms in house.
A final theoretical side effect is If you own the house and then choose to sell it having rented out a room to a company could impact your right to the normal Capital Gains tax relief.
We would not recommend this option as it’s too fraught with issues though we are aware that Contractors sometimes do this so wanted to explain it as an option.
This option is unusual and generally it’s just not worth it for the risks outlined.