Recharging home working costs to your company
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 space to your business, apportioned by floorspace (or number of rooms) and time spent working from home. If you rent your home you can apportion some of your rental costs too (not the case if you're a home owner).
Simplified method (flat rate)
You can use a simplified method which is capped at £6 per week for which you do not need to provide any documentation. This HMRC approved rate is quite low and you should only use it if you really have to!
Key points to note
- The income earned from renting the space to your company will need to be declared on your self-assessment return, if it is greater than £1,000. There could be a small amount of tax to pay, but it would be less than if you extracted the money as salary or dividends from the company.
- If the income you earn from renting your space to your company is less than £1,000, then you don't need to report this to HMRC on your personal tax return, nor pay any tax on this amount.
- Ideally you should have a rental agreement between yourself and the company 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. For example, a typical co-working desk in London is priced at around £350-£400 per month; so the end result should not be more than this amount as it would not reflect a fair commercial transaction.
Aspects to consider
a) Your monthly rent.
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 help us calculate your working from home cost.