Working from home – what about the tax implications?
Many of us are now settled into the routine of working from home and some may also have had to change their working pattern to fit in home schooling. For some, home working may become a permanent change, for others it may not be practical, or they may just long to get back into the office environment.
If you do end up working from home in the future, regardless of the amount of time, it will inevitably result in additional costs and it is important to remember the tax implications of these. Different rules apply depending upon whether you are self employed or employed, which are briefly outlined below.
The self employed (including those in partnership) can claim tax relief on the additional costs of working from home, even if there are separate business premises. The relief is given by including an expense in the business accounts or including an adjustment on a tax return. The amounts on which relief can be claimed can be established in two ways, calculating actual costs, or using fixed rates published by HMRC.
When basing a claim on actual costs, it will be necessary to keep a record of costs incurred, allocate them as fixed or variable costs, and then proportion them on a reasonable basis, which may include area, usage and/or time. Fixed costs include such items as council tax, insurance and mortgage interest. Examples of variable costs are electricity, gas and telephone. Some costs may be directly attributable to working from home and therefore no proportioning is required.
As an alternative to maintaining detailed records and calculations, HMRC’s published rates may be used as follows:
|Number of hours worked at home per month||Flat rate per month|
|25 or more||£10|
|51 or more||£18|
|101 or more||£26|
If you are setting aside an area of your home exclusively for business use, it will impact on the amount of private residence relief for Capital Gains Tax purposes that can be claimed when the house is sold. This issue may be avoided if that area is also used for private purposes some of the time.
Specifically to address the current COVID-19 situation, a temporary exemption has been introduced which covers the period from 16 March 2020 to 5 April 2021. There will be no Income Tax or National Insurance implications for an employee where an employer has reimbursed him or her for home office equipment that has been purchased during this period to enable them to work at home due to COVID-19.
Obviously the above measure is specific and temporary, so what about employees working at home under normal circumstances?
If you have to work at home on a regular basis, rather than choose to, generally speaking you can claim tax relief on the additional costs of working from home, so for example the cost of electricity and gas over and above your normal use.
In order to simplify matters, HMRC will allow an employer to pay a fixed weekly rate of up to £6 from 6 April 2020 to an employee to cover such costs without any tax implications (the rate has been £4 for recent tax years prior to 6 April 2020).
If you purchase something that you need to do your job, and your employer does not reimburse you, or offer you an alternative, you can generally claim tax relief on the cost.
There are various, and sometimes complex rules, to consider depending upon the type of expenditure incurred that need to be considered. As an example, the rules around the cost of home telephone and internet access can be difficult to navigate. The position is determined by such factors as who the subscriber is, who pays the cost and the amount of private use.
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