Many small limited companies, particularly those providing professional services to clients, perform a lot of work from home. One of the most frequently asked questions by small business people is what expenses can you legitimately claim back against your company?
Currently (from April 2012), HMRC allows a flat £4 per week fixed expense (excluding business telephone calls) which can be claimed back from the company, without the need for any receipts. You can read HMRC’s views on reclaiming this fixed rate in EIM01476.
Obviously, this is merely a nominal amount, and will not cover even a fraction of the costs incurred by limited company owners who use their home as a workplace in a significant way.
In addition to this fixed rate expense, you can also get tax relief for a number of other expenses, as long as they are not for services already being provided for personal use, or for dual purpose (such as a broadband line shared by the household as well as the business). You are able to claim for the extra costs of lighting and heating the work place, for example, as well as business phone calls and a dedicated business broadband service.
If you want to claim expenses for your home office, you must have a dedicated work area, such as an office – not a desk in the middle of the sitting room or kitchen. You must be able to substantiate any claims should the need arise.
In order to apportion the proportion of household costs to the business, you will need to work out the percentage of your property which is used solely for business purposes (mortgage interest or rent, insurance, repairs, etc.), what proportion of a utility cost can be apportioned to business use (e.g. lighting or heating), and for how long each day is the service used for solely business reasons (for example, the business area only need to have lighting for 50% of the day).
Limited company directors can also charge the company ‘rent’ as a proportion of the rent or mortgage interest paid by the household. This rental income must be disclosed on your annual self assessment form.
If you use a separate building on your residential premises, you can claim back all the costs for maintaining that building, or charge a proportion of the cost if the building has shared residential use. If the separate building is owned by the business, then more complex tax rules apply, as it will become a business asset rather than a personal one.
- You should remember that all expenses must always be “incurred wholly, exclusively and necessarily in the performance of the duties of the employment.”
- We would also strongly advise you check any prospective home office expense claims with your accountant before you take any action, as the rules can be complex.
- HMRC’s guide to claiming household expenses when working at home.
- A very useful list of specific home working deductions which may be allowable – HMRC BIM47820.
- Limited company expenses if you are caught by IR35
- Travel expenses – what is the 24 month rule?
- What is a limited company registered office?
- Capital allowances and the treatment of company assets
- ClearSky Accounting - specialist support for contractors
- Visit Hiscox for Professional Indemnity and Business Liability Insurance
- Contractor Finance - up to £30,000, when you need it
- InTouch Contractor Accountants - Personal Online Accounting
- Join PCG - Free impartial start-up advice for contractors.
- Visit Qdos Consulting for tax investigation cover and IR35 insurance.
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