Claiming Home Expenses From Your Limited Company ProfitsWritten on October 25, 2016 by Kirk Rice LLP
The Question:
I read with some interest your article last month on home expenses that can be claimed against business profits for people working from home. Your article dealt only with the self-employed whereas I run my business via a Limited company and hence I am employed. What expenses may I claim?
Kirk Rice LLP answers:
Tax law allows an employer to reimburse directors or employees tax free expenses which are “in respect of reasonable additional household expenses which the employee incurs in carrying out duties of the employment at home under homeworking arrangements”. Homeworking arrangements simply mean the director is permitted to perform some employment duties at home.
The tax law further requires that the reimbursement must be ‘in respect of reasonable additional household expenses which the employee incurs …’. Examples of typical expenses include:
- heating and lighting the work area;
- the metered cost of increased water use;
- increased charges for internet use;
- increased home contents insurance;
- business telephone calls;
- a business rates liability
Costs must also be incurred in ‘carrying out duties of the employment’ so costs that remain the same irrespective of whether the director works from home or not are excluded, as are costs which simply put the employee in a position to work from home. The following are examples of excluded costs:
- mortgage interest;
- rent;
- council tax;
- water rates (where fixed);
- building alterations;
- costs of furniture or office equipment.
As an example as to what constitutes ‘additional’ costs, HMRC gives the example that an employee who is already paying for a broadband connection at home, and then starts to work from home under a homeworking arrangement will not be entitled to payment of their broadband costs, because there is no additional expense. However, an employee who does not have broadband at home, yet needs this in order to work from home under the arrangements, can be reimbursed under the exemption for the broadband costs because in these circumstances, the costs are ‘additional’ costs.
As an alternative to calculating the actual additional costs of working from home, a director can choose to make a tax free payment in accordance with HMRC’s published scale rates without any justification required. The rates are currently £4 per week.
Any reader interested in discussing this topic further can telephone Graham Jennings in our Ascot office on 01344 875000 or James Moody in our Putney office on 020 8789 8588 or alternatively email info@kirkrice.co.uk
If you would like to receive Taxing Times electronically, simply email info@kirkrice.co.uk stating Taxing Times Newsletter in the subject heading and we will add you to our distribution list.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.
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