Many UK small business owners operate their limited companies from home. If you do, there are several legitimate ways to claim tax relief for the costs of doing so. HMRC recognises this through different home-working allowances and methods of reimbursement—but each has its pros, cons, and tax implications.
This guide compares the three main approaches:
- Flat-rate allowance (£6/week)
- Claiming actual household costs
- Rental agreement between you and your company
I’ll look at who can claim, how it works, the tax impact, and which method is most efficient for your situation.
- Flat-rate allowance: £6 per week
Overview: HMRC allows your company to reimburse you £6/week (£26/month) tax-free if you’re required to work from home.
Tax benefit: You receive up to £312 per year tax-free. The company deducts it as an expense, reducing corporation tax by £59-£78 depending on the rate. EBA generally credits your director’s loan account with this amount and puts the expense in your company’s profit and loss account to obtain the corporation tax relief.
No need for receipts. Ideal for directors with occasional home working or minimal additional costs.
Pros:
- Zero admin
- No reporting or evidence required
- No CGT concerns
Cons:
- Capped at £6/week
- Might under-claim if you work from home full-time
- Claiming actual additional household costs
Overview: Your company can reimburse the real additional costs of working from home (e.g. extra electricity, gas, water) proportionately.
Cannot include: Rent, mortgage interest, council tax or broadband line rental (unless business-only).
How to calculate:
- Apportion utility costs by the percentage of floor space used and the percentage of time it’s used for work (see below)
- OR compare bills before/after working from home to identify the increase caused by working from home
Example: Annual utilities: £2,400. 1 room out of 4, used 25% of the time for business = approx. 6% of costs. Claimable amount: 6% x £2,400 = £144. If water adds £100, total = £244/year.
Tax benefit: £244 reimbursed tax-free. Corporation Tax saving ~£46.
Documentation required:
- Annual utility bills
- Calculation of business use proportion
Pros:
- Potentially claim more than £6/week
- Tax-free reimbursement
- Still protected by capital gains tax (CGT) relief if the room is not used exclusively for business
Cons:
- Must keep records and calculate usage
- Cannot claim housing costs (rent, mortgage, council tax)
CGT tip: To preserve full CGT exemption on the sale of your home, avoid exclusive business use. Use the room occasionally for personal activities (e.g. guest room).
- Formal rental agreement with your company
Overview: You create a written rental or licence agreement allowing the company to rent part of your home (e.g. a home office). You receive rent and the company claims it as a business expense.
Tax treatment:
- Company: Rent is tax-deductible
- You: Must declare rent as property income. But you can offset proportional costs (mortgage interest, council tax, utilities, etc.)
Example: Home costs: £10,500/year. 1 of 5 rooms = 20% of house. Rent charged: £2,000/year. You deduct £2,100 of allowable costs. Taxable profit = nil (or loss). Company saves up to £500 in corporation tax (at 25%).
Documentation needed:
- Rental/licence agreement
- Board resolution/minutes
- Proof of payments
Capital Gains Tax (CGT):
- Exclusive business use means that, when you sell your house, that proportion of the capital gain applying to the space exclusively used for business will be subject to CGT
- Mixed-use (e.g. using the room for personal admin or guests) retains full CGT relief
Pros:
- Your company can cover a portion of rent/mortgage, council tax, etc.
- Potentially higher tax savings for full-time home workers
- Potentially tax-neutral for you
Cons:
- Rental income must be reported on your self-assessment tax return
- More admin and recordkeeping
- CGT implications if room is used exclusively for business
- Need for fair rent assessment and legal documentation
Summary Table
Method | Max claim | Admin level | Includes rent/mortgage | CGT Risk | Best for |
Flat-rate | £312/year | None | No | None | Low-use home workers |
Actual costs | Varies (~£500 typical) | Medium | No | Low (if mixed use) | Moderate home use |
Rental agreement | £1,000+… | High | Yes | Yes (if exclusive use) | Dedicated office, high costs |
Conclusion
If you work from home as a company director, don’t miss out on available tax reliefs.
- For minimal use, the £6/week flat rate is easy and safe.
- For regular home working, calculating actual costs can save more with manageable effort.
- For full-time dedicated use, a rental agreement can give the greatest benefit, but needs care around the CGT issues and paperwork.
Whatever method you choose, ensure you keep proper documentation and follow HMRC rules. When set up correctly, working from home can offer meaningful tax savings for both you and your business.
Speak to EBA if you’d like us to help you choose the best route, calculate allowable claims, or draw up a rental agreement.
