Claiming Home Office Expenses: Self-Employed vs Limited Company Directors

Many clients often ask what they can claim for home office expenses when working from home, and how the rules differ between claiming as a sole trader versus as a director of a limited company. While the amounts you can claim may be similar, the criteria and evidence required are different depending on your business structure. Here's a breakdown of the key differences and what you need to know for each scenario.

Here’s a simple breakdown to help you understand what’s allowed:

Expense Type	Self-Employed	Director of Limited Company
Council Tax	✅ Proportion can be claimed if part of home is used exclusively for business.	❌ Not normally allowed unless under a formal rental agreement between the director/directors and the limited company
Mortgage Interest / Rent	✅ Proportional claim allowed.	❌ Not normally allowed unless under a formal rental agreement between the director/directors and the limited company.
Utilities (Gas, Electric)	✅ Proportional claim or flat rate allowed.	✅ Can be reimbursed if wholly, exclusively, and necessarily for business use.
Internet & Phone	✅ Business portion can be claimed.	✅ Business portion can be reimbursed.
Flat Rate Option	✅ £10–£26/month based on hours worked from home (Simplified expenses if you're self-employed: Overview - GOV.UK)	✅ Can reimburse £6/week without paperwork (or more with evidence). Please note: “Employees are not eligible to claim a deduction if they have chosen to work at home. Even if the contract allows the employee to work from home, no deduction can be claimed if the employer has appropriate facilities at the workplace.”
Repairs & Maintenance	✅ Allowed if directly related to business area.	❌ Generally not allowed unless exclusively for business use.
Capital Allowances	❌ Not available for home office use. Does apply to other business-related assets (ask us for more info)	❌ Not available at all for home office assets. Assets are claimed through the business and through corporation tax only for business assets.
Rental Agreement Option	❌ Not needed.	✅ Recommended if claiming rent/interest on mortgage or Council Tax through the company.

What Does “Exclusive Business Use” Mean?

To claim certain home office expenses—especially for Council Tax or rent/interest on mortgage — you must prove that the space is used exclusively for business during the time it's being claimed.

Acceptable Examples:

• A spare room set up as a dedicated office, used only for work.

• A dining room used only during working hours for business.

Not Acceptable:

• A bedroom used for work during the day and sleeping at night.

• A kitchen table used for both work and family meals.

What can you use to prove it:

• Photographs of the workspace.

• A work schedule showing exclusive business use during certain hours.

• A floor plan showing the room’s layout and purpose.

• Utility bills and apportionment calculations.

• Rental agreement (for directors) if the company is paying for the space.

To claim the flat rate:

• The employment contract should explicitly state that the director is required to work from home.

• The company should not have suitable premises available for the director to work from.

• The director must actually incur additional household costs due to working from home.

How to Calculate the Business Portion of Home Costs

There are three main methods for calculating home office expenses.

Method	Self-Employed	Director of Limited Company	How It Works	Key Considerations
1. Flat Rate (Simplified Expenses)	✅ Allowed (Simplified expenses if you're self-employed: Overview - GOV.UK)	£6 per week	Use HMRC’s flat monthly rate based on hours worked from home.	No need to calculate actual costs. Only available to sole traders.
2. Actual Costs (Room or Area-Based)	✅ Allowed	✅ Allowed (with rental agreement)	Apportion actual home costs based on either: • Number of rooms • Floor area used for business Then adjust for time used.	Must keep records of costs and usage. Directors need a formal rental agreement and must declare income.
3. Rental Agreement Method	❌ Not applicable	✅ Allowed	Set up a formal rental agreement between you and your company. Company pays rent; you declare it as rental income.	Rent must be commercially reasonable. Requires written agreement and may have tax implications.

If you're a director of a limited company and receive monthly rent from your company to cover costs such as Council Tax and mortgage interest, this rent must be included as rental income on your Self-Assessment tax return. At the same time, you can claim the corresponding allowable expenses (e.g., the portion of Council Tax and mortgage interest that relates to business use) against that income. However, if the amount received exceeds the actual expenses incurred—resulting in a profit—you may be liable to pay personal tax on the surplus, as this is considered a recoupment of expenses.

To ensure compliance and avoid unexpected tax liabilities:

• Calculate the rent and expenses accurately.

• Maintain clear records and proof of all expenses.

• Ensure the rental agreement is commercially reasonable and properly documented.

• Update the calculation yearly to make sure you as the director don’t over claim.

So, the final thoughts are:

If you are self-employed, you have more flexibility in claiming a portion of your home costs.

If you are a director of a limited company, then you must be more cautious claims must meet strict HMRC rules and may require formal agreements.

We’re here to help—just get in touch! Whether you're unsure which method suits you best or want to ensure your claim is HMRC-compliant, our team is ready to support you.