In this blog I will show you how to legitimately get tax relief for household expenses.

Tax is one of largest overheads for a franchise business. Like any other cost, it should be reviewed now and again to make sure it is as low as it could be.

Most franchisees run their businesses as limited companies. A question that often comes up is:

“I’m a director of my franchisee company. I do a lot of admin work from my home. Can I get any of my home expenses back from the company or if not, can I get tax relief for them?”

The answer is yes. There are two methods. One is rubbish and the other is valuable. Most franchisees adopt the rubbish one because they or their accountants know no better.

Rubbish method

You (the director) reclaim home expenses from your company on the same basis as any employee who is home-working.

That means either paying yourself HMRC’s approved homeworking allowance of £4 per week (if you can’t be bothered to keep records), or keeping a record of actual expenses such as light and heat, phone calls etc. and claiming a proportion of those from the company.

If the company doesn’t actually reimburse you, then you can claim these amounts as expenses on your tax return.

It’s rubbish because as an employee (as well as a director) you cannot claim for mortgage interest or rent, water rates or expenses that don’t have a receipt such as cleaner’s cash payments. The first two are generally large.

Valuable method

You rent part of your home to the company.

You do this with a formal licence agreement with your company. The company then pays you rent at a suitable commercial rate.

You are charging rent so you are effectively running a commercial property letting business. You will be taxed on the rent BUT you can claim a proportion of your household expenses against that rental income including:

  •  Light and heat
  • Telephone and ISP
  • Insurance
  • Repairs
  • Cleaning
  • Rent or Mortgage Interest
  • Council tax
  • Water rates
  • Repairs or re-decoration of home office

The company gets tax relief on the rent payments.

You are taxed on the same rent as income BUT after knocking off the relevant proportion of expenses as above.

Most of those expenses would have been incurred whether or not you rented the space out, so you can see that you are basically receiving a chunk of additional income but magically only paying tax on a bit of it.

So that’s how to get tax relief for your household bills. UK tax legislation is complex but that brings with it hidden opportunities like this one. Are you making the most of them?

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Chris Martin

Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.