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Free Guides for new and growing businesses from HRBS - fixed fee accountants and business advisors

Charge rent for use of your home office

hrbs.biz guide to home office rent agreement Charge rent for use of your home officeAs a limited company company director you can charge your company a rent for using a room in your home as an office. We recommend that you have a rental agreement in place between you and the company and we have made available a selection of agreements available for free download here at HRBS.biz.

The rent can be tax free.

The rent that you charge is in respect of the reimbursement of costs incurred. This way the rental income and costs on your tax return will be equal which means that there would be no personal tax due.

However, the company would have received a tax deduction for the rent and you would have received a contribution towards your costs.

You must include the income and costs on the property pages of your self assessment tax return. The company also has obligations to disclose the transaction in the notes to its year end accounts.

How to calculate the rent for your home office.

Costs can be apportioned on a floor area basis if the room is a dedicated office (albeit with some personal storage so that it has a very small element of private use). If the room is not a dedicated office you will need to further apportion the costs.

The “rent” is reimbursement of costs incurred and so these may vary from quarter to quarter when interest rates change, council tax increases etc.

Charging your company.

You can make an expense claim quarterly in arrears referring to copies of supporting documentation in case of HMRC enquiry (mortgage statement, rent book, council tax bill, electricty bills etc).

HMRC have examples on their website for adjustments to be made where a room is only partly used for business. Although the examples are for self assessment purposes, they do act as a guide as to what you can reasonably claim as a cost in your tax return (and hence rent as you would be claiming a reimbursement of costs).

The expense claim.

At HRBS we recommend that the expense claim be along the lines of:

Home office costs for the quarter ended …

mortgage interest (or rent) ~ £cost @ floor area% = £claim
council tax ~ £cost @ floor area% = £claim
water rates ~ £cost @ floor area% = £claim
insurance ~ £cost @ floor area% = £claim
cleaning ~ £cost @ floor area% = £claim
electricity ~ £cost @ floor area% = £claim (*)
gas ~ £cost @ floor area% = £claim (*)
broadband ~ £cost @ floor area% = £claim (*)

Occasional costs such as redecoration or repairs to the exterior of the house can also be claimed if paid personally, in the same ratio of floor area.

* Costs such as electricity, gas and broadband may have a higher proportion as they are not strictly incurred on a floor area basis. The gas heating may only be on because you are at home for example. The business proportion of electricity may be higher to run your PC/Mac/servers etc.

The company can pay for some decoration and repairs.

Decoration of the room only and equipment used in the room for business can be paid direct by the company rather than claimed on expenses. It is standard that the tenant keeps the rented area clean, decorated and in general good order.

All HRBS clients are provided with a free spreadsheet to calculate the home office rent.

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