Directors: How to Claim Work From Home Expenses
Many limited company directors find it cheap and convenient to work from home.
Working from home also gives limited company bosses the opportunity to claim certain expenses against their company’s tax bill.
If you work from home for some or all of the time, there are three main ways that you can claim home working expenses such as electricity, gas and telephone bills through your limited company.
Nominal HMRC ‘work from home’ expenses
This is the easiest way to claim work from home expenses, because you don’t have to justify anything to HMRC.
If you only work from home occasionally, HMRC allows your company to pay for nominal expenses that you may incur.
HMRC sets this nominal rate at £4 per week because they believe this “would be sufficient in most cases, particularly where the additional costs are only for heating and lighting the working area.”
For many, however, this might seem like a paltry sum for running a home office. But it you claimed it for the year, it would subtract £208 from your corporation tax bill with very little effort on your part.
You may consider this option if you don’t want the headache of working out a proportion of household expenses or if you only work at home for a few days each month.
Claiming a proportion of household expenses
Is your home your primary base of operations? Do you work at home consistently or have a home office?
If yes, then you might want to consider claiming a proportion of your household running costs as expenses.
If you choose this route, however, you will need to justify these expenses to HMRC.
While sole-traders that work from home can claim for certain fixed costs like rent or mortgage interest, limited company directors can only claim for certain costs that are incurred directly as a result of working from home.
Any costs that you would have incurred by just living in the home are off limits. And so are costs for things that have personal and business uses which can’t be separated.
The easiest expenses to calculate are for gas, electric and metered water.
If your house has six rooms and you use one of them for work, then you can claim for one-sixth of the total utilities bill on the days you work from home.
If your utility bills come to £900 in April, and you work at home on 20 of the 30 days, you can claim £100 in utility expenses for that month.
£1000/30 x 20 = £600
£666.6/6 = £100
You can also claim for the cost of broadband and telephone bills if they are in the company’s name. If the bills are in your name, you will need to determine how much of the total bill was incurred by the business.
To do this, you may need to pick out specific phone calls that were made for business purposes, or estimate what proportion of broadband usage was for your business.
Once you have worked out these costs, you can add them to your accounts as an expense under the ‘use of home’ category on software like FreeAgent and Xero.
Detailed records must be kept to justify the allocation method, and also costs incurred. Please note that there may be issues for capital gains tax when selling your home as part of it has been used for business. You would also need to consider the need for business specific insurance for your home. In extreme circumstances the property could also be liable for business rates.
Creating a commercial agreement with your company
The third and most complicated option is to draw up a rental licence between you and your limited company.
It must be a commercial agreement, based on real working conditions, that charges ‘market rent’ for the space.
Drawing up these agreements should only be done with the help of a legal professional and potentially an estate agent, to make sure you can justify the costs involved.
And remember, because you will be the recipient of the rent money, you will need to pay a liability on it when you complete your tax return.
Not sure which option will be best for you? Speak to an cloudaccountant today to find out. Call: 0808 281 0303.