Claiming Home Office Expenses Through Your Limited Company

Maximising Your Home Working Expenses: Key Points for Contractors

Running your own limited company offers flexibility, especially if you work from home regularly. To operate tax-efficiently, it’s crucial to know what expenses you can claim and the proper procedures for each method. Below, we outline the recognised options available to limited company contractors and directors, including practical advice for handling claims and staying compliant with HMRC.

Materials Needed: Records and Documentation

• Accurate household utility bills (gas, electricity, broadband, water)
• Records of business use (timesheets, work schedules)
• Calculation worksheets showing your method and rationale
• Rental agreement (if formalising property use)
• Accountant’s advice (recommended, especially for complex cases)

Step-By-Step: How to Claim Home Office Expenses

1. HMRC’s Flat Rate Allowance (£6/week)

This is the simplest route. HMRC currently allows directors to claim £6 per week (up to £312 annually), with:
• No need for receipts or itemised calculations
• Designed to offset minor extra costs from home working (such as lighting, heating, electricity)
• Ideal for directors with occasional home working or those wishing to minimise admin

To claim: Enter the flat rate as a business expense in your company accounts. No supporting evidence is required beyond your company records.

2. Proportional Household Expenses

For more frequent home workers, a portion of actual household running costs can be reclaimed, reflecting business use. Typical claims include:
• Gas and electricity bills
• Broadband (if partly business)
• Water (if business use increases total consumption)
• Home telephone (only business-related calls)

You cannot typically claim:

• Rent or mortgage interest (without a formal agreement)
• Council tax
• General food or household decor/furniture unless wholly business-use

Calculation process: 1. Count the rooms in your home. 2. Identify rooms used for business and calculate the usage time. 3. Apply the business-use percentage to relevant expenses.

Example Calculation Table:

Expense	Annual Cost	% Business Use	Claimable Amount
Electricity	£1,000	20%	£200
Broadband	£360	30%	£108

All allocations must be reasonable, consistent, and justifiable. Always maintain backups for your calculations.

3. Setting Up a Formal Rental Agreement

If a significant part of your home is used solely for business, you may set up a formal rental arrangement between you and your company. This process involves:
• Drafting a rental agreement specifying room, space, and rental fee
• Charging your company rent, which it treats as an allowable business expense
• Declaring rental income on your personal Self Assessment tax return

Benefits

• Greater potential to offset a fair share of property-related costs
• Company reduces its taxable profit

Drawbacks and Risks

• You may owe income tax on rental payments received individually
• Loss of full Private Residence Relief for Capital Gains Tax, if any room is used exclusively for business
• Extra admin and requirement for legal documentation

Professional advice is essential before proceeding with this route.

Troubleshooting: Avoiding Common Pitfalls

• Keep meticulous records: HMRC could request receipts and calculations. Document everything.
• Don’t claim for dual-purpose items: Only items and costs used wholly and exclusively for business qualify.
• Guard against CGT issues: Avoid making any area of your home exclusively business-use to maintain full Private Residence Relief.
• Check terms with insurance and mortgage providers: Some home and mortgage policies require disclosure of home business usage.
• Consult an accountant: Particularly if you plan to claim over HMRC’s flat rate allowance, or set up a rental agreement.

The Takeaway for Efficient Home Working

Understanding and properly handling home office expenses boosts both tax efficiency and compliance. In summary:
• Most directors and contractors claim the straightforward £6/week HMRC flat rate.
• Those working from home more intensively can proportion expenses but must do so carefully.
• Formal rental agreements allow bigger claims, but come with added tax and administrative responsibilities.

If you’re unsure, always seek professional advice. Proper record-keeping safeguards your position if HMRC reviews your claims. For more detailed support, discuss your situation with a qualified contractor accountant.