A Guide to Home Office Expenses for Limited Company Directors

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

Any equipment that is 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 would need to declare it on a P11D form and pay Class 1A National Insurance (NI) contributions. Therefore, as a general rule, you would be better to purchase any personal items with your own personal funds 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 or £312 per annum) from the business.

Working From Claimable Allowances:

‍

How to claim this allowance: ‍

Claiming this flat rate working from home allowance is extremely straightforward as there’s no need for documenting any proof of your expenses. Only if you’re eyeing to claim expenses exceeding these updated £6 weekly, £26 monthly or £312 per annum thresholds, 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 simply need to click into the 'Home Office' tab under personal expenses and log the amount you are claiming. This will then automatically be included in the expenses owed to you.

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 a 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 the total expenses, with copies of all the receipts as well as a calculation of the proportion of these expenses you're claiming. If HMRC chose to investigate your business, they can reject your expense claim without these records. 

Step 1 - Add up your costs:

Examples of the costs you can claim include:

• Use of home broadband
• Use of utilities (gas / electricity etc) - note, water isn't included!
• Other costs such as cleaning

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. 

Step 2 - work out the proportion of the costs you can claim:

Unfortunately the calculation doesn't stop there, you also need to calculate the proportion of these costs you can claim. This involves dividing the number of usable rooms you use for your business by the total usable rooms in your home. By 'usable', this means only including habitable rooms and excluding bathrooms, kitchens, corridors etc. This then gives you the proportion of the home you are using for the business. Then you need to work out the proportion of time the home is used for business in an average week. Finally, you can multiply these two percentages by the home costs (examples covered above).

Often, this can work out to be less than HMRC's flat rate, with a lot more work, so it's understandable that most contractors and freelancers opt to claim the flat rate. However, using a platform like Mighty makes the pain of adding, recording and claiming these expenses quick and easy. Not a Mighty client? Try us free - no card required. 

Claiming for home broadband

Claiming for broadband expenses separately depends upon how your broadband contract is set-up:

‍Personal broadband contract

If your broadband contract is in your personal name, you can only claim the portion of your internet costs that pertain to your business activities. However, this is often not feasible on any fixed costs that you would have incurred regardless (e.g. line rental).

If you pay for the personal broadband contract through the business, then this would be classed as a benefit and as such, both you and the business will be subject to benefit in kind charges.

‍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, providing any personal use is deemed as 'reasonable'.

Claiming for home office space used

An alternative option if you have a dedicated business space in your home is to treat this as a commercial agreement. 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, as well as the costs, which often means there's nil profit to declare. If the property is jointly owned, you will need to split this 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.

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 free 14-day trial of our award-winning accounting software.

‍