Limited Companies:

Working from Home

‍There are three main ways you can go about claiming home office expenses for your limited company:

• Using HMRC's flat rate allowance (up to £312 a year)
• Calculating a proportion of household expenses
• Setting up a formal rental agreement between you and your company

Social Functions and Events

‍To be exempt, the party or similar social function must:This also applies to online or virtual parties.Separate locations and departments.Multiple annual events costing less than £150 per head combined.

• Be open to all your employees.
• Be annual, such as a Christmas party or summer barbecue.
• Cost £150 or less per person.

Trivial Benefits

‍You don’t have to pay tax on a benefit for your employee (or per director) if all of the following apply:You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.

• It costs £50 or less to provide.
• It isn’t cash or a cash voucher.
• It isn’t a reward for their work or performance.
• It isn’t included in the terms of their contract.

Employment Allowance

• You need to claim Employment Allowance every tax year.
• You can claim at any time in the tax year, but the earlier you claim, the sooner you will get the allowance.
• The Employment Allowance for the 2025/26 tax year will be £10,500, up from £5,000 in the previous year. The increase is intended to help smaller businesses with employment costs.You can claim Employment Allowance for the previous 4 tax years.

Pension Contributions

• Contributing to a pension through a limited company can bring significant tax advantages. Pension contributions can be treated as an allowable business expense and can even be offset against your business's corporation tax bill. In companies with over £250,000 in profit, this can reduce your tax bill by 25%.

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Individuals and Sole Traders

Working from Home

‍You may be able to claim a proportion of your costs for things like:You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.

• heating
• electricity
• Council Tax
• mortgage interest or rent
• internet and telephone use

Trading Allowance

• If your annual gross trading or property income, from one or more trades or businesses is more than £1,000 you can use the tax-free allowances, instead of deducting any expenses or other allowances.
• If you use the allowances you can deduct up to £1,000, but not more than the amount of your income. This is known as ‘partial relief’.

Buy to Let Mortgage Interest Relief

• Since April 2020, you've no longer been able to deduct any of your mortgage expenses from your rental income to reduce your tax bill.
• Instead, you now receive a tax-credit, based on 20% of your mortgage interest payments.
• This is less generous than the old system for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments, but something we commonly see missed off returns now.

VAT Registration vs Incorporation

• If you deal directly with the public and not other businesses, approaching VAT registration of £90,000 a year, you maybe able to incorporate into a Limited company and reset your VAT threshold and earn just under £180,000 before you are required to register, giving you time to adjust and prepare.It’s also important to note that this transfer is subject to TOGC rules.

Making Tax Digital for Income Tax

‍Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) requires businesses and landlords with qualifying income to maintain digital records and update HMRC each quarter using compatible software.For individuals, MTD for ITSA will be introduced in two phases:The government announced at the latest budget that this would be reduced to £20,000 but has not put a date or timeline for this to be introduced.

• from April 2026, for those with qualifying income over £50,000
• from April 2027, for those with qualifying income over £30,000

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