Working from home expenses for Limited Companies

Claim back all expenses you're entitled to

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Updated on
March 1, 2024
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Working from home expenses for Limited Companies

Since Covid, many of us are now working from home, either full time or part-time. If you’re a limited company director doing this, there's an opportunity to claim specific allowable expenses to save you tax. 

These potential tax savings can tally up to hundreds of pounds, further increasing the appeal of working from home. Our comprehensive guide details how to claim back all allowable expenses available to you for working from home. 

This guide covers:

  • Buying home office equipment
  • Claiming HMRC flat-rate allowance (occasional remote working)
  • Claiming for actual costs incurred
  • Signing a rental agreement with your business

Equipment

When you're operating from home, your business can purchase necessary supplies, equipment, or furniture through the company, as long as these expenses are strictly for business purposes.

This allows your company to benefit from tax relief on these purchases.

Some examples include:

  • Stationery
  • Office furniture like chairs, desks, or shelves
  • Devices such as laptops, monitors, or iPads
  • Accessories like cables, mice, and keyboards

Equipment primarily for business use with minimal personal use won't be considered a taxable benefit.

Conversely, equipment used extensively for personal activities, like a TV in your living room, would be deemed a taxable benefit. In such cases, the company should declare it on a P11D form and make Class 1A National Insurance (NI) contributions.

As a general rule, it's more tax-efficient to purchase personal items with individual funds rather than through the business to avoid these benefits in kind charges. 

HMRC's Flat-Rate Allowance

If you work from home on a part-time basis HMRC offers a designated allowance. As of 6th April 2020, you can claim back £6 a week (or £26 monthly) from the business.

Working From Claimable Allowances:

Allowance Type Amount you can claim
Weekly £6
Monthly £26
Annually £312

How to claim this allowance:

Claiming this flat rate working from home allowance is extremely straightforward as there’s no need for documenting proof of your expenses. Only if you’re eyeing to claim expenses exceeding the updated £6 weekly or £26 monthly threshold, will evidence become needed, a topic we’ll delve into shortly.

And remember, for a seamless accounting experience, Mighty’s platform is here to automate and streamline your financial journey. Dive deeper into what Mighty can offer you here.

To claim this allowance in Mighty you should go to XYZ and do ABC.

Actual cost basis

If you believe and can prove by way of a ‘fair and reasonable’ calculation that your actual costs are higher than £6 per week, then you may claim the higher sum.

In this case, you have an option to claim against household expenses; however, you must be able to prove any claims you make. This means maintaining well-organised records of your expenses, with copies of all the receipts. If HMRC chose to investigate your business, they can reject your expense claim without these records. 

Using a platform like Mighty makes the pain of adding, recording and claiming these expenses quick and easy. If you’re a Mighty customer, you can use our Working From Home Calculator then add this cost directly into your account. Not a Mighty client? Try us free - no card required. 

Examples of costs you can claim:

  • Use of home broadband
  • Use of utilities (gas / electricity etc)
  • Other costs such as cleaning
  • Use of the room(s) you work from. 

It is worth noting that you cannot claim for your mortgage, rent, water or council tax as these are fixed costs you would have incurred by living in the property anyway. The amount paid on them will not change whether you work from home or not. 

Using a platform like Mighty makes the pain of adding, recording and claiming these expenses quick and easy. Let’s jump into the rules and how to do this below. 

Claiming for home broadband

Claim for broadband expenses depends upon how your broadband contract is set-up. 

Personal broadband contract

If your broadband contract is in your personal name, you can claim the portion of your internet costs that pertain to your business activities.

So if your broadband contract is £20 a month, and you roughly use 75% of it for business purposes, you can claim back £15 a month or £180 a year. 

To avoid any benefit in kind charges, it is generally most tax effective to have your home broadband contract in your personal name. Therefore you can pay your broadband bill as usual and claim back the business-related percentage of that cost from your company.

Business Broadband Contracts

  • If your broadband contract is under your company’s name
  • The company should make the bill payment directly to the service provider.
  • The entire cost of the broadband, including line rental and usage, can then be deducted as a business expense.

Claiming for bills

Claiming for utilities works slightly differently, typically you make a claim based on the proportion of your home you use for work vs personal life.

Step 1: To calculate the proportion you can claim, confirm how many rooms you use for work and divide this by the number of rooms your home has (excluding bathrooms). 

  • For example, if you use one room for work, and have 4 rooms in your house - your proportion of space used for business is 25%

Step 2: Add up all your monthly bills such as gas and electric. 

  • You can also claim for costs such as cleaning of the office, so long as you have documentation to support your claim. 
  • You cannot claim for council tax, water, cosmetic expenses or repairs that would have to be undertaken anyway. 

Step 3: Multiple your total monthly costs by the proportion of your home used for work. 

  • E.g. If your monthly bills are £100 a month and 25% of your house is used for business, you can claim back £25 a month from your business and deduct this against tax. 

Use Mighty’s working from home calculator to easily calculate, record and claim all costs. 


Claiming for home office space used

In addition to claiming for bills and home broadband, you can claim for the actual space used by your home office.

To do so requires setting up a rental agreement between yourself and your limited company – where you, as the director, rent office space from yourself, as the individual.

It must be a formal commercial agreement, and you should charge yourself rent at the market rate for the proportion of space your home office uses on a per room or total Sq ft basis.

The agreement could also include allowable business costs such utility bills and/or council tax, but you must be able to justify the amounts, and review the agreement regularly.

For your limited company, this will be an allowable expense, but as an individual, there will be tax implications, as you’ll need to declare the rent income on your Self-Assessment Tax Return. If the property is jointly owned, you will need to split the tax according to ownership.


Things to bear in mind…

If you do decide to draw up a formal rental agreement between you and your limited company, you should bear these points in mind:

  • If you have a rental agreement or a mortgage, are you permitted to use your home for business purposes?
  • Would running a business from home breach the terms of your home insurance policy?
  • You may lose your CGT exemption when selling your property if any part of it is deemed to be exclusively for business use.
  • There is also a small chance that your property may become liable for business rates in certain circumstances.

To claim this expense in Mighty simply categorise the rental payment as ‘Use of Home’ when completing your bookkeeping and Mighty will take care of the rest. 

Claiming for more than one room

If you would like to claim back costs for bills or rent more than one room in your home for business purposes, you will need a strong reason for this and be able to provide evidence that the primary use of the other rooms are for business. 

An example would be an artist who has an office for admin, and another room for painting.

Conclusion

In today's world working from home has become a norm for many. Limited company directors have a unique advantage in this scenario; the ability to claim a variety of allowable expenses that arise from working remotely. 

From the HMRC's updated flat-rate allowances to claiming expenses on broadband, equipment, utilities, and even space used for business in one's home, there are substantial financial benefits to explore.

However, it's crucial to understand the rules and consider any underlying tax implications. Use Mighty to simplify this process and ensure that claims are both accurate and compliant. 

Test it out with a 30-day free trial of our award-winning accounting software.

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