Working from Home? Save Your Expenses by Charging Your Company Rent.

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Working from home certainly carries its own price. From receiving larger electric and telephone bills to purchasing essential equipment for your home-office, most self-employed directors inevitably face higher running costs.

How can you ensure your increasing costs from home-based business are accounted for and claimed in correct ways?

 

1. Formalise a License Agreement

Once you’ve deemed certain that you’re performing a substantial amount of your duties from home, the most important step would be to formalise a license agreement with your limited company.

This document would outline the necessary permission for your organisation to utilise (parts of) your residential space – whilst allowing for rent claims in exchange.

Your agreement does not necessarily have to be lengthy or detail-heavy. Simply state the following in your document:

  • What is made available to your company?
  • How long will it be made available?
  • What is the total annual rent charged?
  • What are the terms of notice?

You can claim these expenses by completing the land and property section of your tax-return.

 

2. Declare Your Rental Expenses

What are some costs that can be considered in your home-based business expenditures? Let’s take a look some typical examples that can be included in your tax-return:

  • Electricity and gas
  • Council tax
  • Telephone
  • Insurance
  • Service charges
  • Capital allowances on own business equipment
  • Repairs or redecoration of a home-office

Whilst these costs are certainly chargeable to the company as part of your agreement, it is also equally important to ensure that they are reasonable and inexcessive.

For example, HMRC may disallow rent in a company’s accounts if it considers that the rental payments have not been ‘wholly and exclusively’ incurred for the purposes of its business.

This means that expenses incurred by a director personally would not be reimbursed.

With that being said, however, HMRC also provides reasonable leeway for expenses that may fall under dual purposes. Hence, it is necessary to pass these restrictive tests before checking your figures in.

 

3. Calculate A Fair Proportion of Costs

Of course, every business owner’s home and costs are different – which might render unique breakdowns for you. These are usually calculated based on the share of your house used for office purposes (by square footage).

We know these figures can be complicated and not the easiest to compute.

If you would like further information on helpful templates to calculate rental charges for your company, Right Accounts helps you with your needs.

You can contact us here.

 

 
 
 
 
 
 
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