Many business owners, sole traders and freelancers use a home office. Whether that’s for occasional admin in conjunction with commercial premises or as a full-time office. The good news is that HMRC will allow you to claim a portion of your costs against your tax. Which is nice… But before we all get too excited, it’s not much, it’s not going to make a massive difference but it’s something!

What Can You Claim?

So, HMRC is quite strict on what you can claim but there are allowances. Simply put if you use a room in your house for the business you are entitled to claim something. As a general rule, the method used is to take a portion of the total rooms in your home and claim that portion:

For example:

Say you have a 3 bedroom house with a living room and a kitchen. 5 rooms in total.

If you used 1 room for your office you could claim 1/5th of your house costs from HMRC.

There are still a lot of restrictions but that would generally include a portion of:

  • Your mortgage interest or rent payment
  •  Your broadband
  •  Your utilities
  •  Council tax

At RJF we have a template we use for our clients to work out exactly what you can claim back based on your individual circumstances and costs.

On average you’re probably only looking at an additional £15-20per month, which isn’t huge by any means. But still many people are missing out on it, and every little bit helps right!?

What About Using a Rental Agreement With My Company? 

Often people think “well what if I rent the space to my company from me personally using an official rental agreement?”

This can become complex, however in broad terms (and it’s always best to get advice from us for your specific circumstances) you need a formal agreement in place to do this. Otherwise, HMRC could just see this payment as an extra salary.

Also as with many of these things, the agreement must not overly benefit one side of the other. So you can’t start charging extortionate rents to your company! It would have to be realistic.

The benefit of a formal agreement, of course, is that your company won’t pay corporation tax on these expenses.

Other things to watch out for are to ensure you have regular rent reviews and that you are using a specific and dedicated location in your house.

Personal Liability

As you might expect, any rent you receive from the company for the use of a room should be included as personal income and added to your total income for the year. As such, you would be liable to pay tax on it, just like any other income. This does then mean you need to look at this option carefully to see if after all is said and done it would be beneficial or not. If in doubt call us! 

If you have any questions or would like some help with your tax matters, please don’t hesitate to give RJF a call.