The coronavirus pandemic has shaken and changed a large number of our centre beliefs. Previously, working from home was not common practice for small businesses. However nowadays, having a solid wifi connection and a fast operating laptop, an employee could be sitting on the opposite side of the world and be as productive as in the office pre-pandemic.

Working from home has its own multiple benefits. Staying away from the daily drive sets aside your employees time and cash and gives them greater adaptability to plan their work in their own style. The efficiency benefits are incredible for accountants too as long as the wifi connection is uninterrupted!

Another great idea for Directors of limited companies is to charge rent to the business as the cost of working from home in order to save on Corporation Tax.

How does it work? 

Those who run their own limited company know the difficulties they face related to various overhead costs. Charging your business rent won’t add to the costs further but help you save money while filing taxes. 

In case you’re a limited firm, you’ll save corporation tax at 19% (current rate) and have the option to pull out this money tax-free from the firm. Indeed, there are a few things you need to do to set up this. You need to set up a contract between you (the property holder) and your limited firm. This commercial contract must justify all the amounts included. 

How to calculate the rent? 

When you utilize your home in a significant manner to do your work, you can charge for any costs brought about. Nonetheless, you should have the option to prove every claim. Dissimilar to the rules which exist for sole traders, you can just claim the additional costs brought about because of remote working. 

Remember, any costs you would have borne in any case by the actual idea of running a house can’t be claimed. Just like those expenses which have both individual and business use; however, can’t be isolated. 

You can work this out by determining the expense of suitable costs, for instance – gas, power and water; as per the number of rooms you have on your property and the time you spend working in them. As a limited company director, you can’t claim for any fixed expenses because HMRC says that you would have needed to pay for these at any rate; like  Rent, Mortgage Interest and Council Tax.

You can just claim for the expense of broadband and phone bills if the bills are under your company’s name. If your bills can show specific sums were caused absolutely by the business, you can claim them effortlessly. 

A formal contract with your own company

Alternatively, you may opt for a third option – drawing up a rental licence between you and your own limited company.

This must be a commercial agreement, based on your real working arrangements, and ‘market rent’ must be paid. With this in mind, it may be worth your while asking a local estate agent to provide you with a formal rent valuation.

You should take care when drafting such an agreement (clearly we recommend you seek the help of a professional), and be able to justify the amounts involved.

Although your company will receive tax relief on the rental payments, you will incur personal tax on the rent received when you fill in your annual self-assessment return. If you co-own your home, then when it comes to tax return time, the rent must be split according to the proportion of your home each person owns.

Costs that don’t need justifications

Assuming you just work remotely sometimes, HMRC permits your company to pay you nominal costs to take care of the overall costs you may cause. Your limited company must compensate you (the worker) £6 each week or £26 each month to take care of ‘use of home’ costs. This pre-concurred total doesn’t need to be approved. 

You know, this may appear to be a small amount but when you charge this each month, it becomes £312 each year. A total which usually would be dependent upon Corporation Tax, and afterwards personal taxes whenever taken some other way.

To sum up: 

Please talk to an accountant before doing all that as it can be a mind-boggling task for you. 

Try not to utilize any room in your home all the time for business work as this could lead to capital gains tax issues. Also, ensure if running a business from home goes against your home insurance policy or not. 

Also, compare the sum you are charging your business with local market rates for similar office space; it will guarantee you are not essentially charging more from your business.

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