Tax Implications of Taking Money from a Limited Company for Home Office
Due to COVID-19, numerous people are shifting towards WFH (work from home). Operating from home is benefiting people in reducing the overall expenses. This encourages people to start their businesses. When working from home as a l
Due to COVID-19, numerous people are shifting towards WFH (work from home). Operating from home is benefiting people in reducing the overall expenses. This encourages people to start their businesses. When working from home as a limited company, there are many tax reliefs provided by the HMRC. This blog will let you know about the tax implications of taking money from a limited company for turning a part of your home into an office.
Are you concerned about the tax implications of turning a part of your home into an office? Don’t worry, just let us know and we’ll take care of the rest!
Tax Implications of Taking money from a Limited Company for Personal use?
If you use your home office for personal purposes, you may have to pay personal tax because it is a Benefit-in- kind (BIK). However, proving HM Revenue & Customs that you are not using the business part of your house for personal purposes is quite tough. So, before you put your company’s money into it, make sure you’re prepared for the benefit in kind tax.
Limited company accounts and tax from £249 + VAT.
See limited company packagesBook a free callWhat Expenses can I Claim?
You can claim allowances for the expenses like furniture, computers, or renting any. HMRC has provided strict rules on what is and what is not included in allowable expenses. Heating and electricity expenses such as the costs incurred in broadband, lightning, or running your systems and all the expenses incurred for business purposes are claimable. You are required to keep a log of all the records to account for your costs. As, HM Revenue & Customs can reject your claim in the case you don’t have any record. You are obliged to keep records for at least 6 years.
Unable to keep a record of your business expenses? Let our small business accountants handle this!
VAT Claiming Rules for Home Office
A company can not claim VAT for providing a living place for an employee or a director. The VAT is only claimable if the accommodation is used for business purposes.
For instance, if you use your room partly for personal purposes and partly for business, you can claim VAT on the part exclusively used for business purposes only.
Looking for a VAT specialist? Feel free to contact us?
Business and Private Use
There are two prospects. Do you intend to utilise your home office only for business? This is a simple task. Set-up expenses can be deducted from your company’s accounting. But when it comes to private use, things can get difficult. This is a BIK (benefit-in-kind) to HMRC, and you must disclose it on your tax return.
Company Assets
Your home office becomes a company asset on the off chance that you have your limited company pay for a home office. But it is important to think about the future. For example, if you decide to relocate, you must compensate for the home office by buying it from your company.
Capital Allowances
Remember that the expenses of the building can not be offset against your corporation tax. But you are obliged for all the building, installing and planning costs. However, electric connections, equipment, and furniture are allowable capital expenses. Moreover, ongoing repairs and operating costs as expenses are also claimable.
Private Ownership
You can privately own the home office. It will be considered part of your house, and you can charge rent to your company. Therefore, to avoid paying taxes, rent should be based on a percent of respective household expenses.
Quick Sum Up
We hope you will understand the tax implications of taking money from a limited company better with the highlighted details. A home office may be considered the perfect solution for many businesses. Moreover, it may also prove ideal for the employees, who want to work more from home in the future. But it is also essential to look out the tax implications mentioned above. It requires professional advice.
Contact our skilled accountants for time-saving, cost-effective, and responsive accounting services. We will provide the best solutions to all your business problems and grow your business like never before! So, contact us now! We will get back to you as soon as possible!
Disclaimer: This blog is intended for general information on tax implications.
Tax on each way of taking money out (2026/27)
| Method | Company tax effect | Personal tax effect |
|---|---|---|
| Salary | Deductible. Employer NIC 15% above £5,000 | Income tax and employee NIC |
| Dividends | Not deductible, paid from profit after Corporation Tax | £500 allowance, then 10.75%, 35.75% or 39.35% |
| Employer pension contribution | Generally deductible | No tax or NIC when paid |
| Director loan | No deduction | Section 455 at 35.75% if still overdrawn nine months and a day after year end. Benefit in kind over £10,000 |
| Expenses | Deductible if business related | Not taxable if genuine |
Using our calculator, a director with £80,000 of company profit before salary takes home about £55,765 on a £12,570 salary plus dividends, compared with about £55,012 on a £5,000 salary. Read our seven ways to pay yourself, dividends vs salary and director loan account guide.
Worked comparison at £60,000 of company profit
| Route | Total tax and NIC | Take-home |
|---|---|---|
| £12,570 salary, rest as dividends | £13,909 | £46,091 |
| £5,000 salary, rest as dividends | £14,706 | £45,294 |
The difference is small, which is why the right choice depends on your other income and plans. Leaving profit in the company defers personal tax, but you will pay it when you take the money out unless you use it to invest in the business.
Timing and planning
- Review pay before the tax year ends on 5 April and before the company year end.
- Pay dividends only when there is enough profit, with minutes and vouchers.
- Clear any overdrawn director loan before the nine-month deadline.
- Consider employer pension contributions if you do not need the cash.
- If a spouse is a genuine shareholder, check whether they can use their own allowances.
Common mistakes when taking money out
- Withdrawing cash without recording it, which creates an overdrawn director loan.
- Paying dividends without enough retained profit.
- Forgetting the January tax bill on dividends.
- Ignoring employer pension contributions that could save tax.
- Not reviewing pay when profits or other income change.
Planning checklist
- Estimate company profit before pay for the year.
- Decide your salary level and employer National Insurance cost.
- Plan dividends, with minutes and vouchers.
- Consider a pension contribution.
- Clear any director loan balance.
- Set aside cash for Corporation Tax and personal tax.
Our director tax planning sessions turn this into a clear plan for your company.
Practical next step
Estimate your company profit now, choose your salary and dividend plan, and set aside tax before you take the money. If you would like a London accountant to look at your own position, you can book a free call, and we will explain your options and give you a fixed fee before you commit.
Frequently asked questions
What is the most tax-efficient way to take money from a company?
Usually a modest salary, dividends and employer pension contributions, depending on your income.
Are dividends taxed twice?
The company pays Corporation Tax on profit and you pay dividend tax on what you receive.
Is a director loan taxable?
It can be, through section 455 tax and possible benefit in kind if overdrawn and not repaid in time.
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Related guides
Limited companiesAllowable Limited Company Expenses: What You Can Claim (2026/27)What a limited company can claim as allowable expenses, from travel and equipment to home working and pensions.
Limited companiesDividend Tax Rates 2026/27 and the £500 AllowanceDividend tax rates for 2026/27 are 10.75%, 35.75% and 39.35% above a £500 allowance. See how they apply, with a worked example.
Limited companiesDividends vs Salary: What Is Best for Directors in 2026/27?Compare salary and dividends for limited company directors, with 2026/27 tax, National Insurance and a worked example.