Can I run a limited company from home?

For many small companies, especially during the start-up phase, choosing to work from home is a great option.

Limited company owners who work for themselves, often ask the question if they can run the company from home.

The answer is ‘Yes’, and the other boon is whether you work from home full-time or on a part-time basis you can claim against allowable expenses, writes Zeeshan Anwar, head of compliance at Dolan Accountancy.

While you’re running your limited company from home, it’s important to know what expenses you can claim -- and the tax implications involved. You don’t want HMRC on your doorstep!

What can my limited company claim when the company is run from home?

Broadly speaking there are three ways to account for home working expenses through your limited company:

• Using HMRC’s flat rate amount
• Claiming for additional costs
• Creating a rental agreement between you and your limited company 

Whichever option you go for, it is important to note that if a room is used solely for business purposes, this could trigger Capital Gains Tax if you come to sell.

This CGT risk can be alleviated by giving your room a dual purpose. For example, a home office that's also a living room.

Understanding what options are available when claiming expenses is important. Below are the options available to you:

1. Using HMRC's flat rate 

The easiest way to calculate your home office expenses is to use HMRC’s published allowance for the additional costs of running your business from home.

HMRC's guideline rate to claim work-from-home expenses is £6 per week or £312 a year. For a limited company, this is an allowable expense for corporation tax purposes and pays towards general expenditures such as the home’s heating and lighting. You do not need receipts to prove your expenses, making it easy to claim.

You can claim the flat-rate allowance for business duties such as phone calls and utility costs. However, if you run your limited company from home, you can’t claim private and business-related costs, such as rent/mortgage or broadband fees.

2. Claim for additional costs

For additional costs due to business use, such as increased electricity, phone bills and gas, you can claim more than the £6 a week.

But you will need to keep records as evidence! 

According to HMRC, you can make an additional expense claim for:

• Equipment, services, or supplies you provide to employees who work from home (e.g. computers, office furniture, internet access, pens and paper)
• Additional household expenses, such as gas or electricity for employees who need to work from home

However, when running a limited company from home, you cannot claim fixed costs such as council tax, rent, or mortgage interest.

Unfortunately for hard-working contractors and other limited company directors, these areas of expenditure are not classed as working-from-home expenses on the basis that you’d have to pay them regardless of where you work.

3. Set up a rental agreement

If you run your limited company business from home on a full-time basis, you can set up a rental agreement between yourself and your limited company.

This is a formal agreement that shows you, the owner, rent a working space from yourself, an individual. The agreement should be based on the market value of the property. 

For your limited company, this will be an allowable expense, but as an individual, there will be tax implications, as you’ll need to declare the rent income on your Self-Assessment Tax Return. 

Final thoughts when running a limited company from home…

Being tax-compliant when running a business is very important, particularly if that’s an incorporated business you’re running from your home as its director (duties apply under the Companies Act 2006).

And if you're a limited company owner thinking of working from home full-time in 2024, it is important to stay aware of the costs you can claim and the tax relief available.

Working from home is ultimately an attractive option for both experienced contractors and those starting out, allowing for more flexibility and lower costs involved. But it pays – literally – to know the HMRC expenses rules in this area. Chat to an accountant if you’re unsure, or just interested to know to make running a limited company from home financially worth your while!