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.
What 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.
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.
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.
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.
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.