Ltd Company: Home Expenses

Managing finances is a crucial aspect for small limited company owner-directors, particularly when it comes to navigating the tax landscape. One way to optimise your tax situation is by claiming home expenses, which can help reduce your tax liabilities.

In this blog, we will discuss how small limited company owner-directors can claim home expenses based on UK rules and the potential Capital Gains Tax implications when selling a home used for business purposes.

How to Claim Home Expenses

There are two main methods for claiming home expenses for small limited company owner-directors:

Simplified Flat Rate Method

This method allows you to claim a fixed amount per month based on the number of hours you work from home. The allowable flat rates are:

• • 25-50 hours a month: £10 per month
  • 51-100 hours a month: £18 per month
  • Over 100 hours a month: £26 per month

This method is straightforward and requires minimal record-keeping. However, the downside is that the allowable expenses might be lower than your actual costs.

Apportioning Expenses

Apportioning expenses involves calculating the actual costs of using your home for business purposes. To do this, you need to determine the proportion of your home used for work and the amount of time spent working there. Here’s a step-by-step guide to apportioning expenses:

Identify allowable home expenses: These may include rent, mortgage interest, utility bills, council tax, insurance, maintenance, and repair costs.

Determine the proportion of your home used for business: Calculate the percentage of your home’s total area dedicated to work. For example, if you have a 10 square metre office in a 100 square metre house, the business proportion would be 10%.

Calculate the business use percentage: Estimate the amount of time you spend working from home. For example, if you work 40 hours a week and use your office for 30 hours, the business use percentage would be 75% (30 hours / 40 hours).

Apportion expenses: Multiply the total allowable expenses by the business proportion and business use percentage to determine the allowable home expenses. For example, if your total home expenses are £12,000 per year, the allowable home expenses would be £900 (10% × 75% × £12,000).

Example of Apportioning Expenses

Let’s assume you are a small limited company owner-director who works from a dedicated home office. Your annual home expenses are as follows:

• Rent: £10,000
• Utilities: £1,200
• Council tax: £1,500
• Insurance: £300
• Maintenance and repairs: £500

Your home’s total area is 100 square metres, and your office takes up 10 square metres. You work a total of 40 hours a week, with 30 hours spent in your home office.

• Calculate the business proportion: 10% (10 square metres / 100 square metres)
• Calculate the business use percentage: 75% (30 hours / 40 hours)
• Total home expenses: £13,500
• Allowable home expenses: £1,012.50 (10% × 75% × £13,500)

In this example, you would be able to claim £1,012.50 as allowable home expenses by apportioning expenses.

HMRC Guidelines for Claiming Home Expenses

HM Revenue and Customs (HMRC) sets specific guidelines for claiming home expenses, which include:

• Expenses must be wholly and exclusively for business purposes.
• Expenses should be proportionate to the business use of your home.
• Proper record-keeping is essential to substantiate your claims.

Capital Gains Tax