It’s perfectly legal and an accepted use for your limited company to pay you rent for use of some of your home space, but you must follow these rules:
Firstly, never use a room specifically and entirely for business use. Make sure that there is an element of personal use too, otherwise you may fall foul of capital gains tax.
Now, you need to work out what the actual running costs for your house are. This includes, Gas, Water, Electricity, Insurance, Cleaning, Council Tax and even your mortgage interest (But not the capital repayments).
Once you have these costings worked out, you need to work out a fair charge for the use of the room for the business. This is actually relatively simple. Let’s say you have 5 rooms in your house (you can exclude the kitchen and bathrooms) and you use one of these rooms 50% of the time as an office. If your running costs are £10,000 a fair cost would be £1000 p.a: 50% x 1/5 x £10,000 to the business as rental.
Be aware though, the cost of the rent has to be fair! The value can’t exceed fair local market prices… If you could hire an office space for £500, all-inclusive, you won’t be able to charge £1000.
The last step is, that you’ll have to have an annual license agreement between you and your company. This will also need to be documented at a board meeting, with a resolution agreeing the license.
Don’t forget that as you will be receiving rent personally you’ll need to include this as income on your self assessment Tax Return, and of course you’ll be able to claim the related costs. There are pitfalls so you have to do this properly, if you need some advice or help then just contact us.
There’s a lot of groundwork that needs to be done to get this all in place, but once it’s done, you’ll be able to enjoy a small amount of tax-free savings, while working from the comfort of your own home. 🙂
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