If you are running your business as a limited company, you can claim a proportion of your home costs, including:
As the company and the home owner (you) are separate legal entities it is required to draw up a rental agreement to demonstrate that the company is renting a room from you. We can assist in drafting this short rental agreement.
To demonstrate, we will use an example:
(i) Calculate the total cost (in this example – monthly)
(ii) How many rooms are in your house and how many are used “wholly and exclusively” for the business?
(iii) How many hours each day is the room used for business?
It is used on average 6 hours. The daily usage is therefore 6/24.
(iv) The total cost that can be charged to the limited company will be £1,110 x 0.1667 x 0.25 = £46.26
(a) Personal tax return (SA100)
There is no extra tax to pay. You will have to disclose this rental income on your personal tax return i.e.
(b) Limited company
The rental expense of £555 is an allowable expense for corporation tax i.e. corporation tax reduction of £555 x 20% = £111.
(c) Principal Private Residence/Capital Gains Tax
Provided the room(s) are not being used exclusively for business use there will be no capital gains tax implications. The working hours would need to be stated in the rental agreement e.g. it is used for 6 hours per day.
As an alternative to the calculation above, if the home is being used for occasional business use, the employer can make a payment to the homeworking employee of £4 per week (£208 per year) without the need for any receipts or the calculation as detailed above.