Many of us have found ourselves working from home a lot more frequently due to Covid, so it is important to understand what you can claim for working from home.
As a limited company, there are two ways of working out your home office expenses:
HMRC flat rate for limited companies
This is the simplest way to calculate your home office expenses and is less likely to be challenged by HMRC. You can claim £6 a week (£312 a year) for the 2023/24 tax year. This can be added as a rent expense in Ember and you will receive full Corporation Tax relief on this. To claim this you just need to be working from home occasionally completing more then basic admin tasks.
Its worth saying this does not include the cost of your Phone or Internet so you may be able to claim for these separately if the contract is in the business name.
Rental agreement with your limited company
To claim more then the £312 you will need to set up a rental agreement between you and your limited company. This is vital as it stops HMRC reclassifying this income as additional salary which would then be subject to Income Tax and National Insurance.
If the amount is significantly more then the £312 then you may want to consider setting up a rental agreement. However just a few things to consider:
-If you charge the same as the deemed cost to the business from the calculator, then no income tax would be due on the rental income received as income would be equivalent to cost.
-If you want to charge a market rent, this needs to be realistic in terms of commercial value and deemed to be at arms length. However income tax would likely be due as you would then need to declare the rental income received above the cost to the business.
-A formal rental agreement must be in place and signed on behalf of both parties.
-You should consider regular reviews of the calculator figures used and the rent charged.
-There could be capital gains implications on the sale of your personal home. However this impact is normally negligible.
If you did want to proceed with charging your business rent in this way:
We would need to agree the calculation was reasonable.
We would need a copy of your rental agreement.
You could then start paying yourself from your business the amount per the contract and record as rent in Ember.
Most individuals opt for the first option out of simplicity.
If you do want to consider the second option then please get in touch and one of our accountants will send you the calculator.