Can I Run My Limited Company From Home? A Complete Guide

Can I run my limited company from home? It’s a question many entrepreneurs and freelancers ask, particularly those seeking flexibility and cost-savings. Thankfully, the answer is yes. In this comprehensive guide, we’ll walk you through operating your limited company right from your home. This way, you can make informed decisions and maximise this approach’s benefits.

We’ll explore various aspects from allowable expenses to navigating necessary tax implications and permissions. We will also look at key factors you may want to consider when establishing your home as your official business location.

Yes, running your limited company from your house is perfectly legal in the UK. Many company directors choose to do so, enjoying the advantages of a flexible schedule, lower overhead costs, and a comfortable work environment. But as with any small business set up, there are some rules to be aware of when you work from home. This is especially true and applicable for limited company directors.

Things to consider when running a limited company from home

While running a limited company from home can be great for startups and small business owners alike, you need to think about practical considerations. Do you have room for a dedicated work area with internet access? Could you benefit from the use of office furniture?

You should also consider if your home is suitable for client visits. Perhaps a separate office space makes more sense. Then there’s data security, something to be especially mindful of when working from home. Lastly, think about your business activities’ impact on your neighbours. You don’t want noise complaints right from the start.

Permissions & legalities – can i run my limited company from home?

Although starting your company business from your residence is permitted, there might be a few permissions and legalities to address. For instance, check with your landlord or mortgage provider to ensure running a business is allowed per your agreement. Consider whether your current mortgage will work for you, or if you need to look into contractor mortgages instead.

Although this doesn’t apply to all business types, check if you need licenses specific to the business activity you’re carrying out at home. Contact your local council for clarification on this and planning permissions. These may be relevant if you envision significant home alterations for your company business. The same applies to putting signage outside your home.

Business insurance is also worth considering. Your regular home insurance policy may not cover company business activities. For example, imagine if a customer were to injure themselves at your property. You’ll also need additional insurance for things like your business equipment. If unsure where to look, start with the British Insurance Brokers’ Association (BIBA) website. Here, you can find authorized insurance providers to get quotes from. Consider whether you need contractor insurance, or if standard business insurance is sufficient for your needs.

Working from home expenses for limited companies

Now for the part you’re probably most excited about: claiming expenses. Working from home as the director of your own limited company is different from how a sole trader would handle these additional household expenses. This is because a limited company is separate from the individual running it in the eyes of the law. Thankfully, you can deduct home working expenses using a few approaches, which you’ll learn about below.

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The use of home as office allowance – Can I run my limited company from home?

One approach is opting for what HMRC calls the “Use of Home” allowance. This is a fixed, flat-rate allowance your limited company can pay you, the director, to offset basic expenses. This could include things like heating and lighting for your work area, phone calls, or broadband fees.

According to HMRC’s guidance, you can currently claim up to £6 per week (£26 per month). It’s considered a straightforward option since no justification is needed, and you don’t need receipts.

Although this HMRC’s flat rate allowance may seem low, it adds up to a respectable £312 annually. Without claiming it, that’s £312 of your income that gets taxed. While a tempting route, many opt for claiming additional costs through proportional expenses, which you’ll discover in the next section.

Proportionate household expense claims

When you regularly use a part of your home for work, you might want to go beyond the basic “Use of Home” allowance. You might choose to claim a greater proportion of your household costs for tax purposes. But while this approach can increase your savings, there are nuances to consider. Only certain additional household expenses are deductible.

Think of it this way: HMRC views your company business as a lodger in your home. HMRC distinguishes between costs you would’ve had anyway and extra expenses incurred as a direct result of working from home.

As HMRC clarifies, fixed costs like mortgage interest, rent, and council tax are ineligible. These exist regardless of your home-based business. However, you can proportionately deduct costs directly related to your work, like increased heating, electricity, and water usage. You calculate these by factoring in the percentage of your home used for work and the time spent there. This is your guideline rate.

While some mention the ability to claim a portion of your home internet costs, you can only do this in certain circumstances. You can only claim these costs if the broadband connection is under your company’s name. This is because the agreement needs to be between your company business and the internet service provider, rather than you as an individual.

Even if you personally had internet already, you might need a faster speed to conduct work effectively. If this is the case, you likely won’t be able to make an additional expense claim for the extra cost incurred without paying tax and NI. When it comes to phone bills, you will also only be able to claim for business phone calls on a phone bill that is in your limited company’s name.

The formal rental agreement option

This method entails setting up a formal agreement. This is where you personally rent a designated work space to your limited company, almost as if it’s an external tenant. It can help you claim back a portion of otherwise ineligible fixed costs, like rent or mortgage interest, but involves added complexities.

For starters, any rental agreement needs to be based on the rented space’s actual market value. It should also be properly documented, reflecting a true landlord-tenant relationship between you and your company. You’ll now be receiving rental income, which you’ll need to declare on your self assessment tax return.

You’ll likely want to consult an accountant specializing in taxes. They will be able to advise you on if this is the right approach for your circumstances. They can also make sure you’re meeting HMRC’s standards. Financial experts emphasize having the rent agreement drafted clearly and compliantly. This is to avoid unexpected tax liabilities later on.

Tax relief on equipment

Remember your company is entitled to claim tax relief on any equipment purchased to run your company business from home. That’s equipment like computers, furniture, and tools specific to your company business needs. This is achieved by way of capital allowances.

This tax relief lets you offset a portion of your equipment purchase costs. To maximize these benefits, you can buy equipment using company funds. Then, you record it as a business expense in your books. Alternatively, buy the items personally and claim your corporation tax back from your limited company later.

You can easily manage these expenses using accounting software. There are quite a few great options. Two leading software choices include FreeAgent and Aardvark Accounting. Our suggestion: Try Sleek’s accounting and bookkeeping services so that you can get the best tax returns without the headache. Focus on growing your business while seasoned accountants help you with the tax requirements for your business.

How can a formal rental agreement impact tax?

Using a formal agreement between yourself and your company business is interesting for deducting home-related costs. These costs might otherwise be off-limits. But you need to be very aware of all potential ramifications, including how the rental agreement will impact tax.

For starters, you’ll be liable for income tax on the rental payments your limited company pays to you as an individual. This involves incorporating this extra income into your annual self-assessment tax return.

Capital gains tax is another concern when selling your property. This is especially important if HMRC views the part used solely for business purposes as losing its “main residence” status. You must also make sure your home isn’t reclassified as a mixed-use property by the Valuation Office Agency (VOA) if you have a formal rental agreement. Doing so could result in paying business rates on your home, on top of your council tax.

To ensure the area you rent to your business remains part of your main home, you should also maintain its use for personal reasons. They use a room that serves as a home office but is also a guest room.

Capital gains implications – Can i run my limited company from home?

While claiming those home-based business expenses feels good, be prepared for potential consequences if you sell your home later. Profit made from selling your primary residence is exempt from capital gains tax in most cases.

But what happens if part of your house is strictly for company business use? If you have a formal rental arrangement, HMRC might no longer see that part as your “main residence”. You might be liable for capital gains tax on that section’s profit. This could even trigger capital gains tax on your entire property.

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Conclusion

This comprehensive guide has covered all key question you might have related to ‘ Can i run my limited company from home’. Running a limited company from home is an attractive prospect for entrepreneurs. It offers more flexibility and can be cost-efficient. But make sure you do it right. You should keep organised records, stay up-to-date with HMRC guidelines, and seek guidance from professionals for company formation, corporation tax relief services, and more as required.

Consider using accounting software to help manage your tax returns. You also need to be aware of what you can and can’t claim when running your limited company from home.