HMRC’s rules on whether you can claim use of your home as an office as an expense, or renting part of your home to your company, are complex. They apply whether you’re an employee, a limited company or self-employed (sole trader). We’ve broken down these rules to make it easy to understand the expenses you can and can’t include in your company accounts.
Use of Home as Office expenses
If you work at home, HMRC allows you to include up to £208 as an expense in your accounts each year (or £4 per week for each week worked at home if usage is for only part of the year). HMRC doesn’t consider this amount to be a Benefit in Kind - so you have no personal tax to pay on the amount.
To include this amount as an expense in your accounts, you must undertake substantive duties related to the main trade of your business. This means your company must have a trade or business that goes beyond servicing individual clients and the business activity must be undertaken from your home. You won’t be able to include the expense if you simply sort your business post at home and/or work at client premises.
When we produce your annual accounts, we’ll ask if you carry out substantive duties relating to your business at home and whether you wish to include the £208 amount as a use of home as office expense.
Companies may include more than the £208 amount in their accounts as a rental expense if you use your own premises for work for a significant part of the working week. However, this approach is complex and involves establishing a license to occupy the premises (rental agreement) between an individual company director and the limited company.
Any income accruing to the individual director should be included in their Self Assessment return after deducting expenses allowed for a property business. You’re allowed to deduct expenses in this way because you’ll be operating as a property business by entering into a rental agreement with your company.
If you want to include rental expenses in your annual accounts the following steps must be followed:
Any amount over £208 cannot be classified as a use of home as office expense. The amount must be classified as rental expenses
There must be a license (rental agreement) to occupy the premises between you, the director, and the company. A copy of this rental agreement must be provided to your Crunch accountant before we produce your annual accounts
The director providing the rental agreement should own the property
The rental agreement must be non-exclusive, it must state access is restricted to the specific area of the house wholly and exclusively associated with the rental expenses and over a specific time period each day
The rental expense amount must be reasonable
Because this is a complex area, we’ll make sure a senior Crunch accountant reviews this for you.
To prove that your rental expenses are reasonable, the paperwork and calculations to support the amount included in your accounts needs to be comprehensive.
The spreadsheet below can be used to calculate how much you may be able to charge your company as a rental expense. Crunch accountants will check the calculation at Year End and query any unreasonable or excessive items.
Should the rental income be included on your annual self assessment tax return?
The director issuing the rental agreement will have to include the rental income on their self assessment tax return. You can offset specific expenses incurred, such as mortgage interest, building insurance, repairs and maintenance, and light and heat, for example. If you charge your company more than the expenses incurred, there will be an income tax liability on the excess when you complete your annual self assessment tax return.
Use of home as office expenses
For most businesses, we recommend you include only £208 per annum (£4 per week) as an expense for using your home as an office in your annual accounts.
What you need to do on the Crunch system is:
Under Suppliers add a new supplier with the name Use of Premises
Add £4 a week under Expenses as Premises Costs > Use of Own Premises.
If you are thinking about entering into a rental agreement with your company, please seek advice from your Crunch Client Manager.
If you do set up a rental agreement you need to do the following on Crunch: