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Working from home? What Tax relief is available?

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Working from home has become more and more common in the current climate. Companies have had to implement flexible working regimes between the office and home working.  This new style of working appears to becoming the new normal and full time office working post pandemic perhaps less likely.

Common questions raised concern whether there is any tax relief for costs relating to working from home. Below is a grid showing some of the common additional expenses that may be incurred due to working from home, along with whether or not tax relief may be available.  

Home working Tax relief

These are set out as a guide and specific advice should be taken for your circumstances if relevant.

Sole trader / Partners / Members of LLPEmployees or Directors
How to Claim?Include expenses within the accounts/financial statements prepared and make private use tax adjustments through the tax calculation via the Self-Assessment Tax Return.

For Partners and Members of LLP’s, any such claims should be made on the Partnership Tax Return/Calculation against their profit share, such claims should not be made on their own Self-Assessment Tax Returns, as HMRC would normally expect the business to confirm such expenses and wholly and exclusively in the nature of the trade. 
The company can reimburse the employee/directors expenses via their own expenses claim procedures. However, companies are not obligated to do so.

In which case the individual would likely need to register for self-assessment to claim against such expenses via against their employment income on a Self-Assessment Tax Return.

Any claim must be substantiated and records/receipts kept in case of HMRC enquiry but the difference for employees are directors is the expense must be wholly, exclusively and necessary (WEN test) in the performance of their duties as an employee.  This is the major difference between employed and self-employed individuals in terms of expenses and HMRC have a very specific views on such matters. 
Telephone, Mobile and broadband costsShould you have a phone for work and personal use, then you can claim the business element through the accounts. Similarly, a proportion of the business costs can be claimed for use of a landline. If you include the full costs within your accounts, then a private-use adjustment should be made when preparing the tax calculation.

If you have a separate work phone then you can claim 100% for these costs.

This works the same for Broadband costs
You can only claim phone costs which can be quantified directly as business costs (itemised phone bills) – no claim can be on line rental costs as it does not meet the (WEN) criteria and seen as a duality-purpose cost – you will have had to have paid the cost anyway as it is a personal phone.

Company mobiles are a tax-exempt benefit. If you are not provided with these a dedicated business line in your home is the only case where you can claim 100% of costs. 
Working from Home – Simplified ExpensesThe amount which can be claimed depends on the number of hours worked per month.
 – 25-50 hours = £10
 – 51-100 hours = £18
 – 101+ hours = £26
Currently entitled to a deduction of £6 per week, or £26 per month for monthly paid employees, (excluding telephone/broadband) for each week that they’re required to work at home. This would cover the extra light, heat and energy costs.

If you are an individual who is working from home due to the Covid-19 pandemic – you can claim such tax relief direct from HMRC a the following link:-

https://www.gov.uk/tax-relief-for-employees/working-at-home
Working From Home – Actual CostsStep 1 – Calculate your total yearly costs, which as a self-employed individual can include mortgage interest (or rent), council tax, water rates, insurance, electricity, gas mainly – occasionally you can consider repairs to the rooms used for business and cleaning (A)

Step 2 – % the room is used for business purposes (E.g. 8 hours used for business but room used for a total of 12 hours per day = 66% includes all usage not just one individual, it should never be 100% for capital gain tax purposes)

Step 3 – How many rooms do you use for business multiplied by number of rooms in the whole house (exc. bathrooms) (C&D)

Final weekly claim = (A/52) x % x (C/D) 
Employees who wish to deduct more than £6 per week/£26 per month will be expected to keep records and to confirm how their figures have been calculated on additional light, heat and energy costs only.

Other such costs are rent, mortgages payments, non-metered water, and insurance does not meet the wholly, exclusively and necessarily in the performance of duty rules and cannot be claimed as these amounts would have been payable anyway (similar to phone costs above).

In limited circumstance, directors are potentially able to claim rent costs but this is rare and mostly difficult to prove. 
Office equipmentYou can claim tax relief on the full cost of substantial equipment, for example a computer or workstations.

Relief is normally claimed through capital allowances as they would be considered a fixed asset. 
In most cases, the company would provide any equipment in order for the individual to perform their duties. As long as there is no significant private use of such company assets, there is no tax implications because in the event such individuals leave the business, the company will request such assets be returned.

Direct reimbursement to employees is rare because should the individual be required to pay for office equipment, and the company reimburses you, unless it is part of contractual obligations, the asset is personally bought the individual and the company has no access to the asset after an individual leaves.

If you are not reimbursed, you need to be able to prove the WEN test before making a claim to HMRC. (i.e. if an individual had a computer desk before you were employed and just renewed this, you cannot make such a claim)
Use of Personal Vehicle – Mileage ClaimsIndividuals who use their own personal vehicle for business journeys can claim the following rates as an expense:
 – up to 45p per mile for the first 10,000 miles
 – 25p per mile thereafter.  

Business mileage records should be kept including dates of travel in the event of any HMRC enquiries.

The mileage rate is only available for journeys, or any identifiable part or proportion of a journey, that are wholly and exclusively for business purposes. It is not available for private journeys, such as travel from home to work, or for journeys that serve both a business and a private purpose.

The mileage rate covers the costs of buying, running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle.

Use of Personal Vehicle – Actual CostsSimilar to working from home, a self-employed individual can calculate the total expenditure on the vehicle during the accounting period on the following costs;-

– running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT.

The individual then claims the business percentage of these costs, normally calculated by business miles over the total number of miles completed during the year.

The purchasing of the vehicle needs to be considered in more detail would is driven by the fixed asset rules for accounting and capital allowances legislation for tax purposes. 
Not applicable to such individuals – need to use milage claim expense details. 
Other travel costsCan claim for other travel (taxis, trains etc.) parking, tolls etc and subsistence inc. overnight stays but must be of a reasonable level.No difference to sole traders but in most cases, company’s have expense procedures in place for such expenditure incurred. 

It is always beneficial to seek your accountants advice in such matters as this is a complex area of legislation and any errors could prevent tax relief being given by HMRC.

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