Can I charge my limited company rent for using a room in my home?

If you carry out some of your contract work from home, there are many benefits. There may also be some (small) pitfalls. The line between personal and work space can become blurred, and your utility bills might also start to creep up.

So, if you use a room in your house solely for contract work, it seems only fair that your limited company should pay something towards your household costs, right?

In practice, most contractor directors keep things simple and avoid charging rent altogether, as the tax and admin overhead can outweigh the benefit.

In this guide, Christian Hickmott, Managing Director of Integro Accounting discusses this frequently asked question:

Can you charge your limited company rent for using part of your home?

Well, the answer is yes, within reason. But, perhaps a better question is: should you, and is it worth your while?

There are some downsides to charging your company rent, and it isn’t something usually recommended in practice – for the reasons we explore below. A good alternative is to claim a fixed weekly rate for using your home for business.

Flat rate allowance or claim proportion of home use?

The alternative to charging your limited company rent is to claim expenses at either HMRC’s flat rate amount OR to claim a proportion of your household expenses. See also expenses you can claim and our guide to working from home expenses.

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Flat rate use of home allowance

You can claim HMRC’s £6 per week flat rate allowance for the use of your home for business reasons. The company pays this amount to the employee or director, reducing the company’s taxable profits.

This is often the preferred option for directors of a limited company, as it’s simpler and requires no receipts or calculations.

Claiming a proportion of home use

If you work from home full time, this £6 per week amount might not cover your expenses.

In this case, you can calculate a proportion of your home expenses that are incurred in the course of running your business.

You must keep adequate records, ideally including a copy of any calculations you make.

Interestingly, if you use this method, your weekly claim may be less than £6.

This is because you can only take into account certain allowable household costs. These typically include variable costs such as utility bills, and in some cases, a proportion of fixed costs such as rent, mortgage interest (not capital), and council tax.

You then work out a proportion of these costs, based on the number of rooms in your property and the amount of time you spend on company business in these rooms.

Charging your limited company rent

Put simply, if you charge your limited company rent, this is usually done as a tax-saving measure.

Understanding which of your expenses are allowable and can be reimbursed to you personally can go some way to reducing your company’s profit and, in turn, reducing its corporation tax liability.

Whether it is worthwhile to charge your company rent for using a room in your home depends on the rent you charge.

Counterintuitively, to do this, you need to keep evidence that the room is not exclusively used for business purposes.

The reason is that if a room is used exclusively by your business, it may be deemed to be business premises, which can lead to a whole new set of questions, including:

• Do you need to inform your local council?
• Will this affect your home insurance?
• Will it affect your CGT position and eligibility for full Private Residence Relief if you sell your house?

The downside of charging your limited company rent

As you can see, this isn’t usually recommended in practice for several reasons. If you do decide to go down this route, there is a lot of work involved to set it up correctly.

You will need to set up a formal agreement between you and your company, and carefully consider the following points:

How much rent can you charge?

To determine how much rent you can charge, you need to review commercial rates for local office space to ensure you do not exceed the current market rate.

The agreement can include the costs of heating and electricity. However, if the rent charged exceeds the allowable element of your current working-from-home costs, it can result in a rental profit. You – as an individual – will then be liable to income tax.

Rental agreement

You need adequate proof of the rental arrangement between you as the property owner (if jointly owned, each owner should be named) and your limited company.

You need to produce board meeting minutes to evidence that the company’s directors have made the agreement.

Following on from an earlier point, make sure you specify whether the designated business area in your home is also used by the household for personal reasons. For example, business in the day and a family room in the evening.

Remember – if your company exclusively uses the space, there could be CGT implications when you sell the property.

Check with your landlord, mortgage provider and household insurance company

If you’re renting part of your home to your limited company, it is worth notifying them where applicable.

There may be clauses in rental agreements and mortgage conditions that prohibit using your home for business purposes.

You may also need to pay for additional insurance coverage or incur additional costs to meet your insurer’s terms and conditions, such as complying with additional health and safety measures.

Your personal tax situation

When you receive rental income from your company, this will count towards your personal pre-tax income.

The rental income should be recorded on your annual self-assessment tax return.

Integro has more about this here in answer to ‘how will my rental income affect the tax I pay?’.

Our recommendation

We have discussed all three methods in this guide, but we recommend speaking with your accountant to determine the best solution for your company.

HMRC’s £6 a week flat is preferred by most of our clients.