One of the benefits of self-employment is the ability to claim expenses for anything used wholly and exclusively by your business, such as equipment like laptops and printers, but it can also cover the cost of using part of your home as a workspace.

Rather than paying for a different space and all the extra costs that come with it, such as rent, working from home can be a great way to save your company a heap of money.

Claiming expenses for running your limited company from home is a bit different to sole traders working from home though, because the business is a separate legal entity to you as a person (unlike sole traders who ‘are’ the business). This means you can’t claim tax relief on fixed costs the way someone who’s a self-employed sole trader can.

In this blog we’ll focus on working from home expenses for your limited company, and how you can claim them.

Yes, your limited company can claim tax relief on expenses even if you run it from your own home. There are lots of expenses you can claim that may help with the cost of running your home office, from furniture to stationery and postage.

As a limited company your business has different options for working out home office expenses:

• Using HMRC’s flat rate method
• Calculating the actual cost of running your home office
• Renting your home office to your limited company

Using flat rate ‘simplified’ expenses

Limited companies can’t actually claim simplified ‘flat rate’ expenses – only sole traders or partnerships that don’t have a company as a partner are allowed to use this method.

However! An employee or director can claim them from the company as a ‘reimbursement of expense’, and the company then saves tax on it as an expense.

Working out your expenses using the flat rate method – also known as ‘simplified’ expenses, means you calculate your home working costs using HMRC’s flat rate, rather than calculating your actual costs in detail.

HMRC allow you to claim a flat rate based on how many hours you work from home each month – up to a maximum of £26 per month.
 

Calculating your actual working from home costs

Another option is to work out your actual costs, rather than using the flat rate method. If your actual expenses exceed the flat rate, then it’s usually more efficient to claim using this method instead – but you’ll need to show how you worked out these costs which makes it a little more complicated than simply applying the flat rate.

If you do want to work out the exact costs you incur by working from home, the expenses you can claim for include:

• Heating, light, and power expenses
• Calls made from your home telephone
• Insurance on equipment
• Broadband costs if the contract was put in place after you began to work from home
• A proportion of cleaning costs
• Additional rent charges you’ve incurred when running your business (not rent on your home you would’ve incurred anyway)

 
It’s worth noting you can’t claim working from home expenses if your limited company has an office already, or the work you do from home makes no money for the company (but you may be able to claim a working from home allowance for things like bookkeeping or emails).

Can I rent my home office out to my business?

Charging your limited company ‘rent’ is actually a thing! While you won’t be able to charge for all the rent or mortgage interest you pay, you can create a rental agreement to cover a proportion of the costs, considering things like council tax and utility bills.

It’s essential that you create a rental agreement, because this will allow your company to deduct rental payments from your company’s profits before tax.

When creating your rental agreement, it’s worth noting:

• You need a room dedicated to your business
• The amount of rent you plan to charge must be at a commercial rate
• A formal rental agreement will need to be signed on behalf of both parties

It’s best practice to put annual reviews in place to reassess the amount of rent you’re charging your limited company.

What to consider before letting out part of your home to your company

There are some things to think about before charging your limited company rent for space in your home.

For example, the rent you earn from your company is classed as rental income, so you’ll need to disclose it in your annual Self Assessment, and pay tax on it!

Your property may be subject to Capital Gains Tax if you come to sell it, and the part of your home which was used for business won’t qualify for private residence tax relief.

Directors and employees can claim some expenses when working from home – but unlike self-employed individuals, they can’t claim things like rent, council tax and mortgage interest. Basically, anything classed as a ‘fixed cost’ cannot be claimed by a director or employee as these costs are paid regardless of whether or not the business is in operation there.

There are working from home expenses you incur that you can claim for though, for example calls made from your home telephone, or money towards heating and electricity bills – but there is a limit to what you can claim as well as how much.