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Use of home claim for company directors

2018-03-15

The guidance is complex but the summary is that the maximum that can be included as use of home is £4 per week (£208 per annum).  

In order to claim an amount above the £208 per annum this cannot be included in the accounts as use of home but instead it needs to be rent of the premises by the director to the company.  A letting agreement needs to be put in place, in writing, between the director and the company, to support this claim.  The director will need to include the total rent received on their self assessment tax return and against this cost they can claim expenses such as mortgage, property costs, etc, just as one would for any other rental of a commercial property.

Please note the following:

  • You’ll need to put a licence in place that permits the company to use your home for business purposes.
  • If you rent your home then your landlord may not permit sub-letting, although it is unlikely they will object when the sub-tenant is essentially yourself.
  • The rent must be charged at a market rate.
  • The room must not be used exclusively for business purposes.
  • The rental income must be declared to HMRC via your self assessment tax return and income tax paid thereon.
  • If you co-own your home then the rental income and income tax liability is split accordingly.

The area that HMRC would be most interested in is how the rent charge has been determined.  If you have overvalued the rent charge then HMRC will not allow full tax relief in the company’s corporation tax computation.  You would still pay income tax based on the full rent received so it’s important to ensure the rent charge isn’t excessive.

Calculating market rent

There is no set method for determining an arm’s length rent charge but some strategies could include:

  • Arranging for an estate agent to estimate the rent. They may charge you for this.
  • Finding out how much it would cost to rent similar sized office space in a business hub or centre.
  • Calculate the business proportion of household costs and add a mark up. This time you can include fixed costs such as insurance, mortgage interest, rent, et al. 

These are just examples; any fair and reasonable method can be used.  The key point is that you can’t just pluck a figure out of thin air.

Please get in touch if you are interested in exploring making a claim for rent to your company.

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