Following government advice that individuals should work from home wherever possible to reduce the spread of the coronavirus, many offices and workspaces have closed.
While the tax rules surrounding working from home have not changed, the number of people these could apply to has significantly increased.
For employees…
For employees, it is important to note that there is a distinction between choosing to work from home and being required to work from home by your employer, with tax relief only available if homeworking is required by the employer.
Relief is limited to additional expenses you incur because you must work from home. These include things like a proportion of lighting and heating costs, business-related telephone calls and so on. The element of costs which remains the same whether you work from home or not (such as mortgage interest, rent and council tax) cannot be claimed.
Expenses reimbursed by employer
If your employer has agreed to meet expenses related to your home working, they may pay you up to £6 per week tax free (£4 per week prior to 6 April 2020) without requiring any supporting evidence of the actual cost to you.
Should your employer reimburse costs above this level, supporting evidence of the additional household expenses must be kept in relation any payments made, otherwise any payments in excess of £6 per week would be subject to tax.
No homeworking expenses paid by employer
If your employer isn’t contributing anything for homeworking expenses, you can make a claim to HMRC for tax relief on those expenses, either using the fixed rate of £6 per week or the actual expenses.
Assuming the £6 per week allowance was claimed, a basic rate taxpayer would save £1.20 per week, rising to £2.40 per week for a higher rate taxpayer.
If you receive some reimbursement from your employer but this does not cover the total additional expenses (either using actual expenses or the £6 per week fixed amount), a claim can be made to HMRC for tax relief on the difference.
For the self-employed…
Self-employed individuals will have running costs for their business, including those arising due to working from home. Expenses incurred as a result of working from home can be a deductible expense for tax purposes.
There are two options are available when calculating the deductible amount:
Option 1 – Actual expenses
When making a calculation of the actual expenses of working from home HMRC states the self-employed must do this on a “fair and reasonable basis”, such as dividing the costs by the number of rooms used or the amount of time spent working from home.
Many expenses can be included within these claims, for example the interest element of their mortgage payments (not the capital repayment), council tax, rent, utilities, telephone and broadband and even a percentage of any property repairs.
Option 2 – Simplified expenses
The “simplified” option allows expenses to be calculated using a flat rate based on the hours worked from home each month. As the name suggests, this option is appealing as there is no requirement to maintain significant records of all household expenditure and work out the split between personal and business use.
This “simplified” option allows tax relief on;
- a flat rate of £10 a month for between 25-50 hours worked
- a flat rate of £18 a month for between 51-100 hours worked
- a flat rate of £26 a month for 101 hours or more
Business telephone calls are specifically excluded from the above figures and additional tax relief on the actual cost of these calls is available.