The COVID-19 pandemic has resulted in substantial numbers of people working from home. The below outlines the tax implications of working from home expenses for both the employed and self-employed.
Employed
Household expenses
Employees who work from home may receive the homeworking allowance of £6 per week from their employer. The allowance is free from tax and National Insurance contributions and covers additional household expenses, such as: utility bills, heating, additional insurance etc.
The allowance is normally available to employees who work from home under the homeworking arrangements. However, HMRC have confirmed that the allowance will be available to employees who were required to work from home as a result of office closure or self-isolating. As things return to ‘normal’, employees who wish to continue working from home for a few days a week may need to enter into the homeworking arrangement with their employer if they want the homeworking allowance to continue. Employers should look to obtain legal advice in respect of any changes to employment conditions, temporary or permanent.
If the additional expenses exceed £6 per week, the allowance may be increased but the amount has to be agreed with HMRC, if it is intended to be free from income tax and National Insurance contributions.
Alternatively, the employer may reimburse the employee for the additional costs of electricity, heating, business calls. In this case, records evidencing the additional costs incurred by the employee must be kept. Reimbursements of any expenses, which would have been incurred by the employee anyway, such as council tax, rent, pre-existing broadband and telephone bills, water rates, would not be tax free.
Office equipment
Employers may provide the following equipment to their homeworking employees, tax free:
- One mobile phone per employee with no private use restriction.
- Laptops, tablets, computers, office supplies, desk, chair, provided private use of the item is insignificant.
The employer may then claim capital allowances in respect of purchase of the equipment.
If the employee purchased office equipment themselves, the employer may reimburse the employee for it and the reimbursement will not be taxable, provided that private use of the equipment is insignificant.
If the employer does not reimburse for the cost of the equipment, the employee may claim a deduction from their employment income on their tax return, provided that the equipment was purchased wholly, exclusively and necessarily for the performance of the duties. The employee must keep receipts to evidence the expense.
Travel
Travel expenses are not claimable if they constitute ordinary commuting between home and permanent workplace. However, if an employee’s home becomes their permanent workplace and they are required to travel to a temporary workplace from time to time, the travel costs would be deductible. On the other hand, if the employee works partly from home and partly in the office, their permanent workplace is their home and their office and any travel between those may not be claimed.
Self-employed
If you are self-employed and working from home, there are a number of expenses you may claim against your trading income. Any expenses that are claimed by self-employed individuals must be business expenses, i.e. incurred wholly and exclusively for the purposes of the trade.
Household expenses
Household expenses may be claimed either as a business proportion of actual costs or as a simplified flat rate deduction.
The first option entails a reasonable apportionment for business use of the actual costs incurred on mortgage interest or rent, utility bills, Council Tax, telephone, broadband, etc. The business proportion is estimated based on either the amount of time you spend working from home or on the number of rooms in the property.
Alternatively, a simplified flat rate deduction may be claimed. The rates that may be claimed depend on the number of hours you worked from home in a particular month:
- If you worked between 25 and 50 hours in a month you may claim £10 for that month.
- If you worked between 51 and 100 hours in a month you may claim £18 for that month.
- If you worked more than 101 hours in a month you may claim £26 for that month.
The simplified flat rate deduction is only available if you work from home for 25 hours or more in a month.
Home office
Repairs and maintenance costs of the home office, such as repainting, may be claimed as a trading expense. However, costs incurred in respect of any extensive works carried out to create or improve a home office may not be fully recoverable. Capital allowances may be available on certain expenditure such as a heating system. Each item would need to be looked at individually to determine the correct tax treatment.
If you purchased equipment or furniture for your home office, you may either claim capital allowances (if you use traditional accounting) or deduct the cost in the normal way (if you use the cash basis of accounting).
If you wish to adapt your home so that one room is used exclusively as your home office, this may have unwanted tax consequences on the eventual sale of the property as main residence relief may be restricted.
In addition to the above, other business expenses such as stationery, post, travel, advertising, etc. should be available as usual.
If you require further advice in respect of the expenses you can claim, please feel free to contact us.
