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Spondoo Accounting
Call for Assistance: 02033 259 341
Spondoo Accounting

Working from Home Allowance Calculator – when invoicing your limited company

May 27, 2021

A director renting home office space to their company  

As a limited company director – instead of claiming the working from home Flat Rate allowance of £6 per week (£26 per month) under the simplified expenses rules, you can rent out a personal workspace in your home to your limited company. You are allowed to claim certain costs from your company if you provide home office space when working from home. 

Under this arrangement, a rental agreement should be put in place – between yourself as an individual and your own Limited company. The director then becomes the company’s landlord, and you can invoice your company for ‘rent’ of the office space. This commercial agreement allows the director to declare a proportion of the home running costs in their personal tax return. 

Licence or lease – the better option 

A formal lease is controlled by the Landlord and Tenant Act that has Capital Gains Tax and Business Rates implications. However, a non-exclusive annually renewable license for a home office is less rigid and binding. 

Setting up a formal agreement 

A rental agreement proves a commercial arrangement between the director and the company. It is crucial to remember the following when setting up: 

  • Record the intention to enter into the agreement in Board Minutes. 
  • The agreement should be established before or at the point of occupation and not backdated. 
  • The agreement must be in joint names (affecting both landlords personal tax returns) if the property co-owned. 
  • The rental license must be justified – the director must prove that they genuinely work from home, and these costs are incurred wholly and exclusively to run the business. 
  • The rental charge must not be above what might be fair market rent.  
  • Do not use your office room entirely for business use – keep a small space of the room for personal use – to protect you from potential capital gains tax issues in the future. 
  • Check your home insurance policy to make sure running a business from home doesn’t cause issues. 
  • Check your rental agreement to make sure you’re allowed to run a business from your home – if you are renting a property. 

How much rent should I charge? 

Charge your limited company rent that is: 

  • Reasonable  
  • Justifiable  
  • Not more than commercial market rental values of serviced office space. It is advisable to research locally to find out the limits.  

Additionally, rent can include service charges for the incremental costs.  The costs should be calculated to reflect proportional costs to avoid a gain in your personal tax return.  

Remember that should the rent charged to the company exceed the household costs personally incurred, you will be taxed on the difference (rental profit). To avoid this, the rent that you receive from the company should equal the costs you have incurred. 

What costs can be included in the working from the home calculation 

The rent you charge should have all services provided to the company. You can include the following costs: 

  • Rent 
  • Council tax 
  • Service charges 
  • Electricity & gas 
  • Contents insurance 
  • Cleaning 
  • Light and heat 
  • Telephone 
  • Insurance 
  • Repairs or re-decoration of home office 
  • Telephone costs – if using a private residential telephone line, only claim the cost of the business calls. If you have a separate business line installed in the name of the company, all incurred costs are allowable expenses. 
  • Internet – If the broadband account is personal, you may only claim a proportion of the bill based on your business usage. However, there is no taxable benefit if the broadband account is in the company name and any private use is insignificant.  

How to calculate a fair proportion of the home running costs 

To calculate your home running costs, you must know how many rooms you have in your property – then work out what percentages of the time you use one (or more) of the rooms for business use. Feel free to use our working from home allowance calculator for free! 

Claiming home office expenses 

It is crucial to review the advantages and disadvantages of this arrangement with a tax professional since the director (as an individual) would be receiving rental income some or all this income would be liable for personal tax 

Calculate my home running costs now! 

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Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

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