Working from Home: Renting Office Space to Personal Company
In line with government guidelines, large swathes of UK workers are currently working from home. Whilst there are a range of expenses you may be able to claim depending on your specific circumstances, this blog is aimed at those of you who own a limited company and are running the business from home.
Rather than claiming the flat rate of £6 per week (£26 per month) under the simplified expenses rules, it may be more beneficial to instead rent out the personal work space in your home to your limited company.
Under this arrangement, where the rent charged is equal to costs (see below), then no taxable rental profits will arise. Furthermore, provided that the rent is charged at no more than the market rate then the rental payments made by the company will be an allowable expense for corporation tax purposes.
If the rent charged exceeds deductible costs, then the rental profits will be taxable as rental income. It should be noted that the £1,000 tax-free property allowance is unlikely to be available to reduce your taxable profits.
When calculating your rental profits you can deduct the proportional costs of the rented space.
In order to simplify the calculation you may wish to consider dedicating a room/rooms in your house to your business. If you are using more than one room you may be required to provide a good reason for this, e.g. a photography studio and a dark room.
Further information on allowable expenses can be found here.
Things to Note
Creating a rental agreement can generate more in rent that the flat rate of £6 per week. However, it is important to note that setting up this arrangement is more complex than claiming the flat-rate allowance and there are several things to consider before proceeding with this option:
- A formal rental agreement needs to be created between you as the landlord and the limited company as the tenant
- The amount of rent needs to be realistic in terms of the commercial value of renting out a proportion of your home.
- There should be regular reviews of rent paid; a monthly review might be appropriate in light of Covid-19.
- Homeowners should note that if they subsequently sell the property, Private Residence Relief for Capital Gains Tax purposes will be restricted where the space was used exclusively for business purposes. To protect the relief, care should be taken to ensure that the room/rooms are also available for domestic use, e.g. a room used as an office during the day is also used as an at-home gym in the evening.
Announcement – Coronavirus Bounce Back Loan Scheme (28 April 2020)
Self-Assessment – Pay Later (COVID-19 Measure) (9 April 2020)
All about the Coronavirus Job Retention Scheme (27 March 2020)
PD Tax Tip: Covid-19 & Tax Compliance (25 March 2020)
Can I claim tax relief for employee expenses? (19 October 2018)