As a director of a limited company, it is likely that you are working on and running your business from your home, either on a regular basis or every now and then. So what expenses can you claim?
As a director of a limited company, there are three options available to you.
- Your company pays you a flat rate per month (EIM01476)
- Calculate the actual costs incurred
- Create a rental agreement between yourself, as a director, and the limited company.
1. Flat rate per month (EIM01476)
HMRC allows for either £6 per week or £26 per month to be reimbursed to employees who work from home regularly without the need to provide any invoices or receipts (From 6 April 2020). This would allow you to claim £312 a year which decreases the company’s corporation tax and has no personal tax implications. So this would make it the simplest way to claim working from home expenses.
2. Calculate the actual costs incurred
This is where the calculation becomes a bit tricky and differs from that of a sole trader. This calculation would only benefit you if you think you incur greater costs than £6 per week.
So you can’t claim for any costs that you would have incurred even if you weren’t working from home. You can only claim for the incremental increase in costs such as heating or lighting for example. EIM32815
For example, you can’t claim for broadband if this was already installed before you started working from home. You can’t claim for rent, mortgage, interest or council tax as you would have incurred these costs either way.
You can calculate this using the following method:
- Add up your actual costs
- Divide your actual costs by the number of rooms in your house (minus the kitchen, bathrooms & hallways)
- Divide your hours worked by the hours in the year to get your percentage of business use
- Then multiply your actual costs per room by your percentage of business use.
P.S. you should make sure that your mobile phone and internet bills are in the name of the company to be able to claim them.
3. Rental agreement between the company and the director
A rental agreement should be drawn up between the director and the company (you should get professional advice on how to draw up the contract). The rent charged to the company should be at market value, and I suggest getting guidance from a professional to get the correct the market rate.
Even though the company may receive corporation tax relief on the rental payments, the rental payments will need to be declared as income on your personal tax return.
It is also worth mentioning that you should check your mortgage or rental agreement to see if you are allowed to run a business from your home. You could also trigger capital gain tax implications if a section of your home is used purely for business use.
As always just a reminder that I am an accountant but I am not your accountant, this blog is for information purposes and should not be taken as advice.