Working from home: Maximising the tax efficiency of your home office!

In recent years HMRC has come to accept that it’s necessary and common practice for many people to work and run a business from home.  The HMRC guidelines state a fixed amount of £4 per week to cover the additional home costs.  In reality this isn’t much compared to the ever increasing energy costs.  Plus it won’t cover the proportion of standing costs such as council tax and water rates.

An alternative solution is to charge the company a fixed rent for using a proportion of your home for business.  The drawback is that if the rent exceeds the deductible proportion of costs relating to your home workplace then income tax is due on the “profit”.

Advice: We would advise setting the rent at a similar level to commercial accommodation covering all bills such as gas, electric, business rates etc.  This will produce greater tax and NI Savings.

Example: 

If you agree to charge your company £6,000 per year for use of a room in your house and assuming the proportion of your annual costs relating to the room were £2,000 the difference of £4,000 would be taxable at 20% (assuming basic rate tax payer).  This means compared to taking a salary you and your company would make significant NI savings of approximately £1,550 per year.

Don’t forget the company still receives corporation tax relief on the full rental cost of £6,000 so a win win!