Working From Home
If you spend a significant amount of time working from home you are able to recharge some of the costs you incur by working from home to your company. This will be considered as rental income to you personally, but it will be off-set by the cost of providing the space to your company.
We do this as it’s a tax saving measure, because it is a tax effective way of being paid from the company. The company also receives a corporation tax deduction on the rental costs paid to you.
In order to calculate this we need to know the main costs in providing the office space, apportioned by space and time spent working from home.
You can use a simplified method which is capped at £4 per week for which you do not need to provide any documentation. This can sometimes be the preferred method if the costs from above are low enough (around £200 per year).
Key points to note
- The income earned from renting the space to your company will need to be declared on your self assessment return. There could be a small amount of tax to pay, but it would be less that if you extracted the money as salary or dividends.
- The result is generally less favourable if you own the property (because there are restrictions on deducting landlord interest), whereas if you rent the property you can obtain a better result.
- We will need to draft a rental agreement between yourself and the company which will need to be signed and held on file.
- If the property is owned by yourself, the rental agreement needs to be on a non-exclusive basis to prevent any capital gains tax issues from arising later.
- The amount calculated should be realistic in terms of commercial value, and should be kept at an ‘arm’s length’ basis, meaning that both parties should benefit from the arrangement.
Aspects to consider
a) The monthly rent or mortgage interest.
b) Average cost of utility bills each month.
c) Council tax.
d) Internet/home broadband/landline.
e) Any other relevant costs related to working from home, e.g. creating a home office, shelving etc.
f) The number of main rooms in your home (how many bedrooms, kitchens and receptions are there; and how many rooms do you use for work)?
h) The number of days per week you spend working from home on average.
i) Is the property shared?
Calculation of cost
You can fill out our form here to calculate the cost of working from home.