Limited Companies
Working from home as a director: what can the company pay you?
If you run your company from home, the company can compensate you for it — the question is how far you want to go, because the three routes trade simplicity against value.
Route one: the flat rate
The company pays you £6 a week (£26 a month) tax-free, no receipts, no questions, no evidence needed. It's deductible for the company and tax-free for you. It's also, obviously, modest — £312 a year. For directors who work from home occasionally, it's the right answer precisely because it costs zero effort. Set it up as a standing payment and forget it.
Route two: actual additional costs
The company can instead reimburse the additional household costs of working from home — the extra heat, light and power that working there genuinely causes, apportioned sensibly. More value than the flat rate for heavy home-workers, but the burden is evidence: bills, a defensible method, and a distinction between costs that increased (heating) and costs that didn't (mortgage interest doesn't become allowable because you answered emails in the kitchen).
Route three: a rental agreement
The grown-up option for genuine home-based businesses: a licence agreement under which the company pays you rent for using part of your home, at a commercially sensible rate. The company deducts the rent; you declare it as property income on your self assessment — but against it you can set the corresponding share of home costs, often leaving little or no personal tax. Done properly — written agreement, sensible rate, real business use — it's the most valuable route. Done as a number plucked from the air, it invites exactly the scrutiny it deserves.
The trap to avoid
Whichever route: keep the workspace dual-purpose. A room used exclusively for business can lose its slice of private residence relief when you sell the house — trading a small annual saving for a capital gains problem later. An office that is also genuinely a spare room keeps the relief intact.
Which route fits
Occasional home-working: flat rate, done in five minutes. The business genuinely runs from home: model the rental route — it's a one-off setup that pays every year. It's a standard part of the efficiency review in our advisory sessions, alongside salary, dividends and pensions — the pieces work best decided together.
This is general information, not advice for your circumstances. If you'd like it applied to your situation, get in touch — the first chat is free.
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