If you run a limited company and work from home, you are entitled to recover genuine business costs. What you are not entitled to do is pass your personal living expenses through the company unchecked.
The distinction matters.
Here is how this should be structured properly.
1. Reimbursing a Proportion of Household Costs
Where part of your home is used for business, your company can reimburse you for the business proportion of relevant expenses.
Typical costs that may be apportioned include:
- Rent or mortgage interest (not capital repayment)
- Gas and electricity
- Water
- Broadband
- Council tax
- Home insurance
The calculation must reflect actual business use. The most common and defensible method is:
- Determine the number of rooms in the property
- Identify the room(s) used for business
- Apply a time-based adjustment if the space is not used exclusively for work
For example, if one room in a five-room property is used as an office, that represents 20% of the space. If it is used for business during working hours only, that percentage should be reduced to reflect non-business use.
The key requirement is that the figure is reasonable and supported by logic. Over-allocation is what creates risk.
You should retain:
- A clear calculation schedule
- Copies of household bills
- Board minutes or internal approval documenting the reimbursement
This protects the position if ever questioned.
2. The Flat-Rate Alternative
Where simplicity is preferred, the company may reimburse you using HMRC’s approved flat-rate home working allowance.
This avoids detailed calculations and record keeping. The amount is modest but low-risk.
For directors who value certainty over marginal optimisation, this is often the cleanest approach.
3. Charging Formal Rent to Your Company
A more structured route is entering into a licence agreement and charging your company rent for use of office space.
This must be handled carefully.
If you charge rent:
- You must declare it as property income on your Self Assessment
- You can deduct a proportion of household expenses against that income
- The company can deduct the rent as a business expense
This approach can be effective in certain scenarios, particularly where the business use is significant. However, it introduces:
- Additional administrative obligations
- Potential income tax implications
- Possible capital gains considerations if part of the home is treated as exclusively business use
For many small companies, a proportionate reimbursement is more practical than a formal rental arrangement.
4. What Is Not Acceptable
Your company cannot simply pay your full rent or mortgage because you work from home.
If the property is primarily your private residence, the company may only cover the genuine business element. Any excess risks being treated as additional salary or a benefit in kind, with income tax and National Insurance consequences.
If reviewed by HM Revenue & Customs, the test applied will be straightforward: is the amount paid commercially reasonable for the business use of the home?
If your calculation is structured and documented, the position is defensible.
Practical Position
For most limited company directors working from home, the optimal balance is:
- Calculate a reasonable business proportion of household costs
- Document the basis of the calculation
- Reimburse through the company in line with that calculation
This ensures legitimate recovery of costs without creating avoidable tax exposure.
The objective is not to push boundaries. It is to claim what is genuinely attributable to the business, cleanly and confidently.
