These days, many people work from home – whether delivering client work or running a business from their living room. If you’re the director of a limited company, and you work from home, you might be able to claim expenses for “use of home as office.”
Here we explain how to make a claim, what you need to watch out for, and how to keep HMRC happy. This guide is for directors of limited companies. The rules for sole traders are different.
The benefits of claiming ‘use of home‘
Making a valid claim has two big perks:
- Your company can claim it as an allowable expense, reducing the company’s corporation tax bill.
- The company will repay this personal expense without any additional personal tax.
Win-win, but only if you do it properly.
Two ways to claim ‘use of home’
1. Standard claim: £26 per month
The simplest option is to claim HMRC’s flat-rate allowance:
- £26/month (or £312/year)
- No receipts, evidence or justification required
- We will do all the admin to include it in the company’s accounts
Perfect if you want to keep things hassle free.
2. Bespoke claim
If your actual costs are higher, you can make a bespoke claim, but it’s much more involved.
How it works:
Your company and you are separate legal entities, so this is treated like a landlord/tenant setup.
- You create a rental agreement between yourself (personally) and your company.
- The company pays you rent for the part of your home used as an office.
- That rent is an allowable expense for corporation tax.
- You include it on your personal tax return, but if you claim matching expenses (which you must be able to justify) no personal tax should be due.
Things to be aware of with a bespoke claim
Check your rental or mortgage agreement
If you rent your home or have a mortgage, check your tenancy/mortgage agreement first. Some prohibit business use of the property or require permission.
You must have a ‘rental agreement’ in place
You need to have something in writing between you and your business. It doesn’t need to be formal or notarised. But without it, HMRC could disallow the deduction.
Keep a clear record of your workings
You need a justifiable method to calculate the rent amount. HMRC may ask for your working if they decide to make checks.
- There’s no set way to calculate this, but the calculation must be reasonable
- Typically based on the number of rooms and hours of business use
- Avoid inflated figures; it’s better to be cautious
You can’t usually claim fixed costs
Things like mortgage payments, council tax or rent aren’t typically allowable, HMRC would argue that they would be incurred anyway, regardless of business use.
The Capital Gains Tax trap
If you own your home and use one of the rooms exclusively for business, Capital Gains Tax will be due on the part you use just for business if/when you sell your home.
Our tip? Make sure your workspace serves a dual purpose. For example, it might double up as a guest room, storage space, or hobby area outside of working hours.
Final thoughts
- Keep it reasonable, justifiable, and documented
- If in doubt, stick with the standard £26/month
- Get advice before setting up a bespoke rental arrangement
A picture paints a thousand words
FreeAgent has a helpful infographic on working-from-home expenses for limited company directors.
Need help deciding what’s right for your situation? We’re happy to walk you through it. Just get in touch.
