Working from home expenses for limited company directors

Working from home is now a normal part of running a business, especially for limited company directors, consultants and owner managed businesses. But one question comes up time after time:

What working from home expenses can I actually claim through my company?

The answer is not always as generous as business owners hope. While there are legitimate ways to claim costs, HMRC rules are quite specific. In some cases, trying to claim more can create extra admin, taxable benefits, or even future tax issues when you sell your home.

In this guide, we explain the main options for claiming working from home expenses, including the simple HMRC allowance, broadband, mobile phone costs, utility bills and the risks of using a specific room exclusively for business.

What are working from home expenses?

Working from home expenses are costs linked to carrying out your employment or director duties from your home. For limited company directors, this often includes:

• Heating and lighting for the work area
• Broadband
• Mobile phone costs
• Office equipment
• A contribution towards household running costs

However, not every household bill can automatically be claimed through your limited company. HMRC looks closely at whether the cost is genuinely additional, whether it is wholly for business, and whether there is private use.

HMRC guidance confirms that employers can cover certain homeworking expenses and benefits without reporting or paying tax, provided the conditions are met. This includes; some equipment, services, supplies and additional household expenses for employees who regularly work from home under agreed arrangements.

The simple working from home allowance

For most limited company directors, the simplest option is to claim the HMRC working from home allowance.

This is often referred to internally as the BUPR allowance, meaning a business use of private residence allowance. In practice, this is commonly dealt with using HMRC’s flat rate homeworking amount.

From the 2020/2021 tax year onwards, HMRC allows employers to pay £6 per week, or £26 per month for monthly paid employees, without needing detailed records to justify the amount. HMRC states that if the £6 guideline rate is used, the employee does not need to keep records showing the additional expenditure.

Why the £6 per week allowance is often the best option

The main benefit of using the flat rate allowance is simplicity.

You don’t need to calculate exact proportions of household bills. You don’t need to measure rooms. You don’t need to keep detailed evidence of electricity, gas or water usage. For many directors, this gives a simple, low risk way to make a legitimate claim without creating any unnecessary admin.

Furthermore, it is also easy for your accountant to process through your company accounts each month.

For many owner managed businesses, the saving from trying to claim more may be relatively small compared with the extra calculations, record keeping and potential tax risks involved.

Can you claim more than the flat rate allowance?

Yes, it may be possible to claim more than the flat rate allowance, but only where the amount can be justified.

Employers can pay higher amounts where there is evidence to support the additional costs. This could involve agreeing a scale rate based on records, or reimbursing actual additional costs incurred. In those cases, the employer is expected to keep records showing how the payments have been calculated.

The practical problem with claiming more

The challenge is that many home costs are mixed use.

Your home broadband, mobile phone, electricity and heating are usually used for both business and personal reasons. That makes it harder to prove that the company is reimbursing only the business element.

For example, your broadband may be essential for work, but it is also used for personal browsing, streaming, family devices and general household use. Your electricity bill may be higher because you work from home, but the bill also covers private living costs.

This is why the flat rate allowance is often the most practical and defensible option.

Can you claim broadband as a working from home expense?

Broadband can only usually be reimbursed tax-free where it represents an additional household cost of working from home. If you already had home broadband before working from home, HMRC’s view is that there is normally no extra cost, so the company should not reimburse the normal broadband bill tax-free under the homeworking rules.

If the company pays or reimburses it anyway, the amount may need to be treated as earnings and put through PAYE and National Insurance. However, if you did not already have broadband at home and it was installed specifically so you could work from home, the ongoing broadband cost may qualify as an additional household expense and can be reimbursed tax-free, provided the homeworking conditions are met and any private use is not significant.

What this means for directors

For most directors, broadband will already be in place at home. That usually means claiming the full household broadband bill through the company is difficult to justify.

A safer route may be to:

• Use the £6 per week homeworking allowance
• Have a separate business broadband contract where genuinely required
• Ensure any company paid broadband arrangement is reviewed carefully before being claimed

Can you claim mobile phone costs?

Mobile phones are treated differently from many other home costs.

HMRC guidance confirms that employers do not need to pay tax or restrict private use on mobile phones and SIM cards, limited to one per employee.

This means a company mobile phone contract can often be a very tax efficient option, provided it is set up correctly.

Company contract vs personal contract

The key point is whose name the contract is in.

If the contract is in the company’s name, it is generally much cleaner for the company to pay for it. If the contract is in the director’s personal name, reimbursing the cost can be more complicated, especially where there is private use.

For many directors, moving to a company phone contract is simpler than trying to split a personal phone bill between business and private use.

Can you claim electricity, heating and other utility bills?

A limited company director can potentially claim for additional household costs linked to working from home, such as heating and lighting the work area. But the claim needs to be reasonable and evidence based.

This is where the flat rate allowance becomes attractive. HMRC specifically notes that the £6 per week amount is expected to be sufficient in most cases, particularly where the additional costs relate to heating and lighting the work area.

Claiming a proportion of household bills

Some business owners ask whether they can calculate a proportion of household bills based on:

• The number of rooms in the house
• The room used as an office
• The number of hours spent working from home
• The percentage of electricity, heating, broadband or other costs used for business

This can be possible in some circumstances, but it requires careful evidence and sensible calculations. The risk is that a claim becomes too complex or difficult to defend if HMRC asks questions.

It can also create another issue that is easy to overlook: Private Residence Relief.

The private residence relief risk

Private Residence Relief (often shortened to PRR)  is the relief that can reduce or eliminate Capital Gains Tax when you sell your main home.

If you claim that a specific part of your home is used exclusively for business, this could potentially restrict PRR when the property is sold. HMRC guidance says no adjustment should usually be made where a room is used as a study, even where a deduction has been made for employment income purposes. However, if a substantial part of the home is used exclusively as an office or for employment purposes, PRR should be restricted.

Why exclusive business use can be a problem

The issue is exclusivity.

If a room is genuinely used only as a business office and never for private purposes, HMRC may argue that part of the home was not used as a residence. This could affect the tax position when you sell the property.

A practical way to reduce this risk is to avoid exclusive business use of a room. For example, a home office might also be used outside working hours as a study, reading room or household admin space.

The goal is not to create artificial arrangements, but to avoid accidentally turning part of your home into a purely business area without understanding the future tax consequences.

Should you claim the maximum possible amount?

Not always - it is understandable that directors want to reclaim as much as possible, especially when they work from home regularly but the largest claim is not always the most productive claim.

When deciding how to claim working from home expenses, consider:

• How much tax relief the claim actually creates
• How much admin is needed to support the claim
• Whether the cost has private use
• Whether the company has the evidence needed
• Whether there could be PAYE or benefit in kind issues
• Whether exclusive business use could affect PRR in the future

For many limited company directors, the simple £6 per week allowance gives a fair balance between tax efficiency and low risk.

Get advice before claiming working from home expenses

At AGILE Accountants, we help limited company directors and owner managed businesses understand what they can claim, what they should avoid, and how to keep their company accounts tax efficient and compliant.

If you are unsure whether your working from home expenses are being claimed correctly, speak to our team. We can review your current approach, explain the most tax efficient options, and help you make confident decisions for your company.

Contact AGILE Accountants today for practical advice on working from home expenses for limited company directors.