As a company employee, could working from home improve your tax position?
6th October 2020
It has never failed to amaze me just how quickly and easily so many of us settled in to working from home not to mention how effective and productive home working has turned out to be. With that in mind, it’s no surprise that reports confirming that this is how people now want to work – whether or not a return to the office is possible or not – are coming out with increasing frequency.
As it does look like home working in some form will now be a permanent fixture, it’s important to remember that regardless of what percentage of the working week you spend at home, there will be tax implications. We thought it may be helpful if we talked you through them.
If you have been and/or will continue to work at home on a regular basis you will probably be entitled to claim tax relief on the related costs of doing so, for example any additional spend on heating and lighting costs, insurance, water, telephone or internet access. Also, if your home working incurs business rates, this could be included as well.
However, these costs will have to relate directly to area of your home you are working from. Static costs – i.e. your mortgage, council tax and water rates – cannot be included.
To make it easier to claim against those costs, from 6th April 2020 HMRC will allow employers to pay a fixed weekly rate of up to £6 to cover such expenses rather than £4 as it was before that date. Alternatively, you can make a claim yourself for the tax relief by going to this website: https://www.tax.service.gov.uk/claim-tax-relief-expenses/claim-online).
You will need a government gateway ID and password to complete the claim: You can create your government gateway ID here: https://www.access.service.gov.uk/registration/email.
If you have had to buy certain equipment because you need it to work from home, the government has announced that for the period 16th March 2020 to 5th April 2021 there won’t be any National Insurance or Income Tax implications if your employer has reimbursed you for the purchase.
Or, if you’ve had to buy something and have not been reimbursed, you will probably be able to claim tax relief on the total cost. Before you make your claim we’d suggest you check with an accountant as what can be claimed will depend on the type of equipment or services that have been purchased.
It is also important to remember the question of what constitutes ‘necessary’ can be a grey area.
HMRC are known to scrutinise the reason for needing a specific service or piece of equipment rather than the way it’s used. If you are providing (or have been the recipient of) new equipment to aid home working may be worth considering adding a clause to your employment contract that restricts the personal use of company assets.
The definition of ‘services’ can also be a point for debate.
Employers can cover the cost of certain services needed for home working, for example a dedicated business line, as long as their employee’s personal use is “not significant” and the subscription contract is between the employer and the supplier.
Alternatively, if you are a director or the owner of your business you may want to discuss how best to account for your home office.
Rather than accepting the standard exemption of £6 a week it may be better to officially rent part of your house. This will make the rent a deductible expense for the business and although the rental income will need to be reported, the homeowner will be able to claim a proportion of the cost of running their home against the rent they report.
The benefit of this approach is the net income will be relatively low so it should prove more tax efficient in terms of National Insurance contributions in particular.
The calculations here can be quite involved so again we’d suggest you work through the numbers with an accountant before you put a formal rent agreement in place.
While working from home will present certain tax reliefs, the detail is crucial. If you would like to discuss which claims you may be eligible to make (or would like to ask any other questions regarding your personal tax position), please call us on 0116 2827000 or email us at email@example.com and we’ll be more than happy to help.