Over the past couple of years since the Covid Pandemic, working from home has become the norm for many organisations. Some businesses have created a hybrid working environment, allowing business owners and employees to split their time between home and the office. This is helping people achieve the ‘perfect’ work-life balance between job satisfaction and spending time with friends and family. Not only that, it has also benefited businesses in several ways such as reducing overhead costs and the increased retention of employees.
Limited company owners who work from home on a full-time or part-time basis can claim against allowable expenses, which will help you reduce your corporation tax bill and increase your income. The tax savings could be worth hundreds of pounds, making working from home a feasible option for you.
The number one rule of claiming business costs is that they must be “wholly and exclusively” for your Limited Company
Let’s look in-depth at understanding of all the allowable expenses available to limited company owners.
HMRC flat-rate allowance
HMRC allocates an allowance for individuals who administer work duties from home part-time. Funding will be capped at £6 a week or £26 a month. No justification will be necessary when claiming this allowance; however, if you want to claim proportionate expenses above the £6 a week or £26 a month cap, you will need proof, which we will cover next.
Claiming job-related expenses if working from home regularly
If you work from home regularly, costs will be higher. Therefore, the HMRC allowance will not be enough to cover your expenses. In this case, you have an option to claim against household expenses. However, you must be able to prove any claims you make. Maintaining well-organised books and records of expenses, and copies of all the actual receipts is key, as HMRC can reject your expense claim without these records. This is where speaking to us at Glow accounts can be of great help in order to maximise you chances of having your claim granted by HMRC.
If you have a dedicated home office, you can claim for costs incurred when working from home. To calculate additional costs is simple, but for dual-purpose services such as water, electricity, and gas you will need to separate bills into two categories: Personal and work expenses. Then, by sectioning your property into rooms and dividing the costs of utilities, you can calculate how much your home office expense payment should be, i.e. the cost of running your home office. You cannot, however, claim on fixed costs. For example Council Tax, Mortgage interest etc. The reason for this is that the amount paid will not change whether you work from home or an external office.
Phone & Internet expenses
If you run a one-person firm from home and don’t have a business broadband contract. In that instance, you can claim back the total cost of your home internet access plus a percentage of the line rental from the Company. However, if you pay a monthly charge for your internet, you should claim the business share. Then, calculate the percentage you can claim based on your business and personal usage. You also need to make sure the company doesn’t pay your home broadband bill directly to the phone company because this is taxable income (and will need to be reported on your P11D). You should pay your Internet bill and then reclaim the business usage from the Company.
If you have a business broadband contract, ensure it is in the Company’s name. The corporation should pay the phone company directly. The Company can then deduct the total cost of the broadband line rental and commercial use.
The same goes for telephone contractual agreements between you and the service provider. A mobile contract in your business name is considered a business expense, and you will be able to claim the entire amount on your return. If any personal calls are made on the business line, it is considered tax free, and there will be no need for reporting on your P11D. The downside of setting up Business phone contracts under your trading name is that you will most likely have to use one of your phone provider’s business tariffs, which may be more expensive than the equivalent personal tariff.
Claiming for more than one room
If you would like to claim for more than one room for business, for example, if you are a photographer who has an office in one room and a dark room in another, you will need to provide this as an exception reason, as well as providing evidence that the primary use of the room is for business. If more than one room is used for business, detailed calculations need to be made and provided.
How To Claim Expenses If You Work from Home as An Employee for Your Own Company
If you work from home through your limited company as an employee, your employer (your own company) can pay you (as an employee) £6 a week or £26 a month to cover expenses and obtain reimbursement through HMRC. It is essential to remember that tax relief cannot be claimed if you have volunteered to work from home or chose to work from home. If you are unsure, you can find the latest details on what expenses you can claim the via GOV UK website.
Conclusion
When calculating the allowable costs that could be claimed for your limited Company, it is vital to remember that all the expenses claims made must “wholly and exclusively” be used for business purposes to ensure tax compliance. There can be many issues incurred by limited company owners working from home compared to sole traders, which have their own nuances, this is why we advise speaking to us at Glow Accounts. Together we can maximise you and your business tax efficiency whilst giving you peace of mind and ensuring a good night’s sleep (as long as it’s not in the home office!)
