Small business owners and contractors operating through a limited company commonly work from home at times. Some of the related home office costs may validly be reclaimed:
- Use the HMRC guidance rate of £4 per week – no records need be provided for claims up to this level, or
- Claim a reasonable amount by apportioning actual home running costs.
For the latter determine:
- Actual costs including mortgage interest (not capital), rent, utilities, insurance, council tax, cleaning etc. Do not include costs which are borne solely by someone else who uses or lives at the property.
- The number of rooms in the property excluding kitchens, bathrooms and hallways. If renting a part of a property only include the accessible rooms.
- The percentage time one of the rooms is used for business purposes. It is advisable to retain some personal use element for this room to prevent capital gains tax issues arising should the property be sold.
- Fair market rent by benchmarking against similar properties in the area – only charges below this level will be allowed to be deducted for corporation tax purposes.
By way of example the calculation then works as follows:
- Assume one room is used as an office with business use at 75% and personal use at 25%. The property has 4 rooms excluding kitchens, bathrooms and hallways. Total running costs are estimated at £10,000 per annum.
- A fair proportion of annual running costs charged to the business as rent would be £1,875 (75% x 1/4 x £10,000).
Note also the following:
- For telephone costs business calls are allowable in full as well as a proportion of the line rental. Similarly, a proportion of broadband costs may be claimed to the extent that the connection is used for business purposes.
- A reasonable amount may also be claimed in respect of general repairs unless the costs relate solely to a part of the property not used for business purposes.
It is recommended that an agreement be drawn up between the company and you personally, supported by suitable evidence as detailed above. The rental income you receive from the business will equate to the allocated running costs so will not be taxable.Share this: