Can I Claim Rent as a Business Expense?

Expenses are hard to get your head around on the best of days. They can be especially tricky if you’re someone who works from home, because it can be difficult to know where exactly you’re supposed to draw the line between your home and work costs.

What’s considered a private cost, and what are you entitled to in terms of allowable expenses? For those working from home in a rental property, one of the biggest recurring costs is likely to be your rent. In this article we’ll explain what the rules are around claiming this as an expense.

What rental costs can I claim if I work from home?

It all depends on whether you’re the owner of a limited company or a sole trader. These are different business structures, with companies being separate entities to the people who own and run them – which has an impact on how you’re allowed to claim rental costs as a business expense.

Owner of a limited company

As the owner of a limited company, you actually have two options for working out how much of your rent you can claim as a business expense.

Rent out a room to the company

The first option is to charge your company rent which can then be claimed as a business expense. You’ll need to be renting out a particular room or dedicated area within your home (as opposed to the whole place), and rent must be charged to your company at a commercial rate. You’ll also need to create a formal agreement and sign it (twice!).

One thing to bear in mind is that your limited company is paying you the rent personally. HMRC don’t care that you’re using the money towards your own rental costs. As far as they’re concerned, you’re receiving rental income, so it will need to be declared as personal income on your Self Assessment tax return.

Claiming a portion of your rent payments as a business expense

Alternatively, you can work out exactly how much you’re entitled to claim. We explain how to go about calculating the percentage of your costs which directly relate to your business in this blog.

It’s worth noting that as well as claiming part of your rent, other running costs typically include things like:

Sole traders

As a sole trader, you have two main options. You can claim a portion of what it costs to rent your property, just like in the example above for limited companies. Or, as a bonus option, you can use simplified expenses, which limited companies aren’t allowed to do.

This will basically equate to a flat rate based on the number of hours you work from home in a given month. It’s well worth sitting down and working out what you’re entitled to claim using both methods, and then using the one which gets you the most money knocked off your tax bill.

Recording your expenses

You want to make sure you have accurate and up-to-date records of all the transactions which take place in your business. Yes, even those relating to expenses.

It will make your life easier when it comes time to fill out your tax return, as well as reducing the risk of forgetting to include things you’re entitled to claim. We don’t want you missing out. Plus, you know, HMRC could ask to check your records at any time. And that’s before we even get into Making Tax Digital.

Online bookkeeping software (yes, like Pandle) can help streamline the whole process, giving you a safe place to store everything.

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.