Working from home

Many of us have had to make profound changes to the way we work in recent times. A daily commute to the office has been replaced with a casual hop across the hallway to the spare room. Office casualwear and coffee machine bants has been replaced by loungewear and hysterical zoom incidents.

You may also have had to make changes to your home setup, and have been spending more on heating, power and home furnishings.

In this note I detail some important tax rules and some possible benefits to you, around home working.

Household bills

Tax relief is available to you if your employer requires you to work from home. This includes government stipulations around Covid. You have 2 options:

• Claim relief equal to £6 per week (£312pa) for the period you work from home. This is a flat rate and no evidence of your additional costs are required.

• Claim the exact amount of your additional costs. This would require supporting evidence. Often the claimant would:

  • calculate the size of their work space as a % of the size of their home (e.g. 100 sq ft / 1000 sq ft = 10%),

  • multiply that by the average time spent performing relevant work in the work space as a % of the time a particular cost is accumulating (e.g. 35 hours / 100 hours pw = 35%)

  • multiply that by the cost itself (e.g. total electricity bill for the year £1000 x 35% x 10% = £35)

  • add together all relevant utilities

What a faff. Most people go for the first option.

Telephone bills and broadband costs may be worth a separate claim provided of course the business element of their use is clearly identifiable (e.g. itemised bills).

This is only available in instances whereby your employer has not already made a reimbursement in respect of your household bills. This is because relief has already been applied by your employer against it’s business tax liability. Any reimbursement you’ve received should be offset against your claim.

Limited Company Directors and Self employed Individuals can bill their businesses a claim for home working expenses. This has the benefit of lowering taxable profits, and enables the proprietor to make a withdrawal free from personal tax.

If you pay your income tax via PAYE, you can call HMRC (or go online here) and have the tax relief incorporated into your tax code or applied as a credit on your personal tax account.

If you pay your income tax via Self-assessment, you can declare the relief on your return.

Equipment

Tax relief may also be available to you if you are required to absorb the cost of equipment needed to do your job from home. This might include a computer or other hardware, but does not include vehicles used for work.

This is a bit of grey area. Normally, employers would supply computer equipment with which to do your job. However, there may be examples where you have had to purchase additional equipment in order to be able to perform your duties from home. This might include office furniture or broadband enabling equipment.

Business owners normally charge the cost of their equipment to their businesses and benefit from the resulting relief on their business tax.

Capital expenditure for Businesses

Some of you proprietors, fatigued by work/domestic plate spinning, may be considering making alterations to your home to accommodate home working. An excellent move.

With the exception of rare cases, the cost of structural changes to the interior of your house would not be an allowable expenditure since this constitutes an enhancement to your personal property, the capital gain on which you will realise upon disposal.

The cost of constructing separately identifiable out-buildings such as garden offices can not usually be claimed for. Even if we were able to confidently assign the structure as Commercial Premises (in the eyes of HMRC, The Council, Planning Authorities etc), and demonstrate that it was moveable, the structure would qualify as a building and not plant, and therefore not be eligible for deduction against taxable profits.

The cost of furnishing the office including its fixtures and fittings and even the cost of its electrical and thermal installations can be offset against profits subject to business tax, as are the office’s separately identifiable running costs.

VAT can be reclaimed on any expenditure (including construction) provided the office is for business use with any personal use subject to income tax on the benefit in kind.

If you have any questions let me know.