1. If your home office is for 100% business use
1) First of all, you will need to have a formal agreement between the company and yourself stating that the home office is for 100% business use.
2) The majority of the building cost is not tax deductible. However, the electric wiring, plumbing, thermal insulations, furnitures, shelving, lamps etc. will qualify for capital allowances.
3) For running costs, you can either claim the business proportion of the actual costs for light & heat, home insurance, telephone, broadband, and other relevant running costs, or claim a flat rate for home working allowance of £6 per week.
4) Normally you don’t pay capital gains tax when you sell your house. However, there’s a potential capital gains tax when you sell your house with a home office for 100% business use. The amount of the capital gains tax would depend on the size of the home office and the percentage of the area it covers of your total floor area. If you estimate that the potential capital gain is not going to be significant then you don’t need to worry about it.
5) You will need to inform your local council. Depending on the assessment by the council, you may or may not need to pay business rates.
6) You will also need to be aware that if you declare that the home office is your company’s asset, when there’s an element of private use, this will then need to be reported on P11D for Benefit in Kind, and Class 1A National Insurance will be payable by the company as well as personal income tax payable by the Directors.
2. If your home office is for both business and private use
1) There’s no need to have a formal agreement between the company and yourself.
2) No capital gains tax implication
3) No need to inform your local council, and
4) You will still be able to claim running costs for the business proportion, but you will not be able to deduct any building costs.
Each individual has different personal circumstances, there isn’t a simple answer for which one is the best option. It’s always best to consider as many aspects as you can, and speak to your accountant before you make the decision.