Tax Planning for High-Earning Company Directors
From 6 April 2026, employees can no longer claim homeworking tax relief directly from HMRC. The old route, where you filled in a form and received a few pounds a week back, has closed.
For a company director, that sounds like bad news. It is actually a nudge in the right direction. If your company pays the cost, it can still be tax-free to you and deductible for the company. The only route left is the one that was always the better one.
I speak to directors about this all the time. A consultant in Tunbridge Wells told me last month, "I work from the spare room four days a week, and I've never claimed a penny." He is not unusual. Most directors either do not know they can claim, or they are nervous about doing it wrongly. Both worries are understandable. The rules are generous in some places and strict in others, and a few popular ideas can cause real trouble.
This guide explains what the company can pay, how to calculate it, what records to keep, and what to avoid. It covers the flat rate of £6 a week, the option to claim actual costs, the equipment the company can buy, and the traps around rent and Capital Gains Tax. I have used the 2026–27 position throughout and worked through an example so you can see the numbers.
Yes. A limited company can pay for the costs of you working from home, and the payments can be free of income tax and National Insurance for you. The company gets a deduction for what it pays. That applies when you genuinely work from home under an arrangement with the company, and when the payments are reasonable and supported.
There are two ways to do it. The company can pay a flat £6 a week without needing receipts. Or it can reimburse the actual extra costs you incur, with evidence. Either way, the company can also buy equipment such as a laptop, desk and chair, and keep ownership of them.
The simplest method is the flat rate. An employer can pay up to £6 a week, which is £312 a year, towards the extra household costs of an employee working from home, with no receipts. The payment is free of income tax and National Insurance for the employee, and it is a deductible expense for the company.
As a director, you are treated as an employee of your own company for this purpose, so it applies to you. The payment doesn't have to be made weekly. Many directors pay it monthly or once a year, in a lump sum of £312, and that works equally well.
There is one condition that matters. The payment should be made under a formal arrangement that allows or requires you to work from home. Without it, the payment risks being treated as a taxable benefit. In practice, for a single-director company, that means a short written homeworking policy, signed by the company, and a board minute that says so. It takes ten minutes to write. I give my clients a template.
You might wonder why this matters now. Until April 2026, an employee whose employer paid nothing could claim the same £6 a week from HMRC, directly, and receive tax relief on it. That claim has gone for 2026–27. Employees can still claim for earlier years, but not for the current one.
The employer's payment hasn't gone. The £6 a week that a company pays remains available, and as far as I can see from current guidance, it continues to be tax-free. But for directors who used to rely on the HMRC claim, the company-paid route is now the only one. If you have been claiming personally through your tax return, speak to us about moving to the company-paid method.
If your costs are higher than £6 a week, the company can reimburse the actual extra costs you incur because you work from home. These are costs you wouldn't have had if you worked elsewhere. They include additional heating and electricity for your work area, metered water in some cases, business telephone calls and the business share of broadband.
The condition is evidence. You need the bills, and a reasonable method of working out the business share. For gas and electricity, a common approach is to take the proportion of your home used for work, by floor area, and multiply it by the proportion of the year you use it. If you use one room out of six, and you work in it for 2,000 of the year's 8,760 hours, the business share is about 3.8%. On annual energy bills of £2,400, that is about £91.
Broadband is harder because it is used for both work and personal life. A fair split is needed, such as 50%, and you should be able to explain how you chose it. If you cannot support the figure, use the flat rate.
For most directors, the answer is the flat rate. In the example above, the actual costs come to about £331 a year, which is only marginally more than the £312 flat rate. The flat rate needs no calculations, no bills and no argument with HMRC. The actual-cost method is worth the effort only if your costs are much higher, for instance if you heat a large outbuilding all day in winter.
If you are a sole trader and not a limited company, the rules are different. Sole traders can claim a flat rate for the business use of their home, based on the hours worked each month, or the actual costs. The flat rates are £10, £18 or £26 a month, depending on whether you work 25 to 50, 51 to 100, or 101 or more hours a month at home. Please check the current figures on GOV.UK before relying on them. Sole traders can't pay themselves the £6 a week, because they have no employer.
The flat rate or actual-cost reimbursements cover the running costs. The company can also pay for the things you need to do the job.
A company can buy a laptop, monitor, desk, chair, printer and other items you need to work at home. The equipment belongs to the company, and you use it for work. That can be tax-free for you if any personal use is only incidental, such as occasionally checking a personal email.
The company gets tax relief through capital allowances. Under the Annual Investment Allowance and full expensing, the cost can usually be deducted in full in the year of purchase. A company that buys £2,250 of equipment, for example, could save £596.25 in Corporation Tax if its profit is in the marginal relief band, where the effective rate is 26.5%.
Two warnings. First, the items should be kept as company assets, and recorded in a fixed asset register. They shouldn't be gifted to you or used mainly by the family. If your children use the laptop every evening, it is no longer incidental. Second, if you take an item when you leave, or sell it to yourself, tax consequences can follow. Ask us before you do.
One mobile phone contract in the company's name is exempt from the benefit-in-kind rules, even if you use it privately. A second contract, or a family contract, would be taxable. If you use your own phone for business, the company can reimburse the business calls, with an itemised bill.
There are two ways to treat broadband. If the contract is in your name, the company can reimburse a fair business share. If the contract is in the company's name and you use it mostly for work, the position is more complicated, and private use must be incidental. The safest approach for most directors is to keep the contract in your name and apportion.
Software subscriptions, printer ink, paper, pens and similar items bought for the business are straightforward business expenses. Keep the invoices and make sure they are paid by the company or reimbursed.
If you need extra home insurance because of business equipment, the extra cost caused by the business use may be claimed. A general home insurance premium isn't deductible, because it protects your own house. Only the genuine additional cost is allowed.
Directors sometimes ask whether the company can pay for a garden office or a loft conversion. These are capital projects with different rules. The company would be improving a building that you own, and that raises questions about ownership, tax relief, planning, and the Capital Gains Tax issue I discuss below. I would never recommend going ahead without advice first.
A common idea runs like this. "My company should pay me rent for the room I use. I get rental income, and the company gets a deduction." It sounds neat. It rarely is.
The rent is income to you, and it is taxable. If the company pays you £3,000 a year, the company's Corporation Tax saving is £795 at the 26.5% effective rate. But a higher rate taxpayer pays 40% on the rent, which is £1,200. You lose £405 overall. A basic rate taxpayer pays £600 and comes out about £195 ahead, but the gain is small.
The rent also changes how HMRC views the room. A formal rental arrangement suggests the room is used exclusively for business, and that brings the Capital Gains Tax issue into play.
When you sell your main home, you normally pay no Capital Gains Tax, thanks to private residence relief. But if part of your home is used exclusively for business, that part may lose its relief. The gain on the business portion could be taxable when you sell.
HMRC's guidance is that a room used for both work and personal purposes doesn't stop you getting full relief. The problem arises when a room is used only for business. Charging your company rent, or fitting out a room solely as an office and never using it for anything else, increases the risk.
The practical rule is simple. If you work from the spare room, let it also be a spare room. Keep a bed or a sofa in it. Let the family use it occasionally. Don't charge rent. And if you are planning a sale in the next few years, speak to us before you do anything.
Most people working from a room at home do not pay business rates. But if you convert part of your home into a dedicated office, receive visitors, employ staff there, or use an outbuilding, the position may change. Check with your local council or the Valuation Office Agency if you are in any doubt. Mortgage lenders and landlords can also have terms that restrict business use, so read your agreement.
Good records are the difference between a safe claim and an argument.
You should keep the written homeworking agreement, the board minute, and a record of each payment. Mark the payment clearly in the accounts as "homeworking allowance" so that it is easy to see. If you pay £312 in a single sum, note the period it covers.
Keep the underlying bills for gas, electricity, water, broadband and phone. Keep a note of your method: the room size, the total floor area, the hours of use and the percentages applied. Write it down once, and repeat it each year. If you change your working pattern, update the note.
Keep the invoice for each item, and record it in the fixed asset register with the date, cost, supplier and location. Photographs can help for higher-value items.
Scanned or photographed receipts are normally acceptable. Store them in your accounting software against the transaction. Our guide to company expenses explains the principle.
Keep records for at least six years from the end of the accounting period. If HMRC opens an enquiry, you want to be able to answer quickly.
Pay the allowance from the company bank account to your personal account, and describe it clearly. Don't take cash from the company till and call it homeworking costs. Our guide to separate bank accounts explains why a clean trail matters.
Here are the mistakes I come across most often when directors try to claim for working from home.
The company can't pay a share of your mortgage interest, rent, buildings insurance or council tax simply because you work at home. Those are costs of owning or occupying the house, not extra costs of working there. Claiming them is one of the quickest ways to start an enquiry.
If you receive the £6 a week, you can't also claim the gas and electricity for the same period under the actual-cost method. Choose one method for each period and be consistent.
A payment of £1,000 a year "for working from home" with no calculation behind it is a magnet for questions. The flat rate is £312. If you pay more, you need the evidence to support it.
A laptop that the company owns but the children use every evening is no longer a tax-free business asset. It can become a benefit in kind. Our guide to benefits in kind explains how that is taxed.
As we saw, rent can cost a higher rate taxpayer more than it saves, and it can put your main home's Capital Gains Tax relief at risk. It's not usually worth it.
The arrangement should reflect reality. A director who works from a rented office most days and from home occasionally can't justify the same claim as one who works from home full time. Be honest about your pattern.
Without a policy, the flat-rate payment may be treated as a taxable benefit. A short document protects you.
Let me put the numbers together for a typical director. A Maidstone consultant works from a spare room four days a week. Her company has a 31 March year-end and a profit of about £100,000, which puts it in the marginal relief band.
Under the flat-rate method, the company pays her £312 for the year under a written homeworking policy. It is tax-free to her. The company deducts it, saving £82.68 in Corporation Tax. The administrative cost is almost nothing.
The company also buys a laptop, monitor, desk and chair for £2,250. These are recorded as company assets. Under full expensing or the Annual Investment Allowance, the company deducts the full cost and saves £596.25 in Corporation Tax. The equipment is used for work, and any personal use is incidental.
In total, the company pays out £2,562, saves £678.93 in Corporation Tax, and the director pays no tax on any of it. The net cost to the company is £1,883.07.
Now suppose she is tempted by the rent idea and arranges for the company to pay £3,000 a year for the room. The company saves £795. She pays £1,200 in income tax on the rent as a higher rate taxpayer. She is £405 worse off, and the room now looks like exclusive business use, which puts part of her main home's Capital Gains Tax relief at risk.
The simple method won. It costs less, needs less paperwork and carries fewer risks.
Quick answer: Yes. A limited company can pay up to £6 a week, or £312 a year, towards a director's homeworking costs without receipts, free of income tax and National Insurance, if there is a formal arrangement to work from home. It can alternatively reimburse the actual extra costs with evidence. The company can also buy equipment such as a laptop and desk.
What this means for a company director: Since 6 April 2026, employees can no longer claim homeworking tax relief directly from HMRC, so the company-paid route is the only one available. You should put a short written homeworking policy and board minute in place, pay the allowance from the company bank account, and keep your records for six years.
Example: A Maidstone consultant's company pays her £312 under a homeworking policy and buys £2,250 of equipment. The company saves about £678.93 in Corporation Tax at the 26.5% effective rate, and she pays no tax on either. If the company paid her £3,000 of rent instead, a higher rate taxpayer would lose £405 overall and could put Capital Gains Tax relief on her home at risk.
Common mistakes: Claiming a share of the mortgage, rent or council tax. Claiming the flat rate and actual costs together. Paying round sums with no basis. Letting the family use company equipment. Charging rent. Having no written agreement.
When should you speak to an accountant? When you first set up homeworking arrangements, before the company buys expensive equipment, before you charge rent or convert part of your home, and if you plan to sell your home in the next few years. Ask us too if you have been claiming personally through your tax return and want to move to the company-paid method.
Many directors leave the £312 unclaimed for years. It is small, but it adds up, and with the personal route closed it is now only available through the company.
Your home is your home. The company can pay for the extra cost of working there. It cannot pay for the house.
If you claim actual costs, keep the bills and the method. If you can't, use the flat rate.
A room used only for business can cost you tax when you sell. Keep it as a mixed-use room.
A homeworking policy and a board minute take minutes to prepare and can save a great deal of argument.
Rules on homeworking have just changed, and the Autumn Budget is due on 28 October 2026. What I have written is correct for October 2026, so check the position again before you act.
If you would like help setting up a safe, tax-efficient homeworking arrangement for your company, we'd be delighted to hear from you. At Peter Hodgson & Co, we work with sole traders, contractors and company directors across Tunbridge Wells, Tonbridge, Sevenoaks and the rest of Kent and the South East. We can draft the homeworking policy, work out what your company can pay, record the equipment properly and make sure the claims will stand up if anyone asks.
To arrange a conversation, you can complete the "Contact Us" form on our website, call us on 01892 515 733, or send us an email at info@peterhodgson.co.uk. We would be glad to help!
Disclaimer:
The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.
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