If you use a room (or even space within a room) at home as an office
for your business, there is no reason at all why you shouldn't charge
your company rent for it. The advantage of doing this is that you can
claim a fair proportion of household expenses (eg mortgage interest,
rent, rates, gas, electricity, insurance, telephone and broadband)
against the rental income and only declare the net profit on your tax
return. Meanwhile, the company can claim the full amount of the rent
against corporation tax, provided it does not exceed the going rate for
your area.
This is quite a good idea if your telephone and broadband bills are in
your personal name and you cannot claim them as expenses from your
company without them being treated as taxable benefits (see out
information sheet on Telephone and Broadband). All you need to do is
work out how much rent you need to charge to cover all your expenses
and invoice your company.
You should also make sure that you retain some domestic use of the
room in order to avoid any liability to capital gains tax when you come
to sell the property, although any gains would probably be covered by
your annual exemption. Home offices are also exempt from business
rates provided there is no public access.
How should you work out a fair proportion? For expenses relating to
the whole property such as insurance you could pro rata them based
on the number of rooms or the floor area. For gas, electricity,
telephone and broadband you should estimate a fair percentage for each cost according to the actual usage, but there is no need to go into
much detail. Approximate figures will do.
Is it worth it? Well if you charge rent of £100 per month and find
expenses to cover this, your company would save corporation tax of
£252 per annum and it would not cost you a penny. Not a bad reward
just for doing a few sums and filling out an extra section on your
personal tax return.
