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Charging Rent for Home Office to Ltd Company

Charging Rent for Home Office to Ltd Company

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I set up a LTD Company and work from home. Use one room out of 9 rooms in house. Can I charge the company rent without being personally liable for tax, for 1/9 of household expenditure, such as Council Tax, Electricity, Gas and costs for repairs to the house? 

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By thisistibi
19th Nov 2010 10:27

Home office

This will work differently to home office costs of a self-employed person.  A self-employed person can claim any home office costs which are wholly & exclusively incurred when working at home, including an apportionment of rent/rates, etc.

For an person employed by a company, for it to be treated as an expense (i.e. not taxable on the individual) rather than salary, it must be incurred wholly, exclusively and necessarily in the performance of his/her duties under s336 ITEPA 2003.  That is a more strict definition than for self-employed people.

HMRC have guidance (http://www.hmrc.gov.uk/manuals/eimanual/EIM32760.htm) which discusses this point further.  I think you should meet this test as you (presumably) have no choice but to work from home.  However, the scope of expenses you can claim - per HMRC - is limited to the additional costs of light/heat and business telephone calls (see EIM32815).  HMRC specifically explain in EIM32820 why you cannot claim costs such as council tax, rent, mortgage interest and insurance.

As an alternative to claiming specific home office expenses, HMRC do accept a flat rate payment of £3/week to the employee (plus business telephone calls on top of that) (http://www.hmrc.gov.uk/incometax/relief-household.htm).

You can of course charge your company rent for the use of part of your premises.  It's just that it will be taxable income in your hands since it fails to meet the conditions of s336 ITEPA 2003.  It might still be a useful way to extract money from the company depending on your income tax position (potentially less tax might arise compared to salary, as National Insurance won't apply).  However, you should be wary of the impact on your CGT relief for principle private residence if you decide to go ahead with such a claim (refer to http://www.hmrc.gov.uk/manuals/cgmanual/CG64650.htm).

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Nichola Ross Martin
By Nichola Ross Martin
19th Nov 2010 10:49

Detailed guidance

A detailed guide on this topic, together with a non-exclusive licence agreement is available from my webservice, it also covers the duties tests, expenses, CGT, Business Rates and VAT issues (if they might apply). Go to Directors, what expenses can I claim? (guides also available for self-employed and regular employees).

Virtual tax support for accountants: www.rossmartin.co.uk

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By bilbob
19th Nov 2010 12:10

rental charge

As suggested the way around this would be to charge the company rent to an amount equivalent to the 1/9th apportionment of expenses, so that no net rents arise. On the CGT point I believe the principal private residence exemption is not affected if use of the room is not exclusivley for business.

 

 

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