Is there any HMRC tax relief for working from home?
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Is there any HMRC tax relief for working from home – let’s find out!

From the past decade, working from home has become a common phenomenon. Office of national statistics shows a significant surge of in-home workers from 2.9m to 4.2m, between 1998 and 2014. This figure is believed to rise ever since.       

Employees who work from home may claim additional costs. Some employers may be willing to reimburse the payments, while for others (other employees) this may not be the case. What do they do then? They need to see whether tax relief is available or not.

In this article, we are going to consider both the above-mentioned cases for employees and also HMRC tax relief for self-employed people. 

HMRC tax relief

Scenario 1: work from home tax deduction

Case 1: employer repayments of costs

While working from home, employees do face some additional expenses. From 2003, employers have been able to make tax-free payments to help their employees incur these extra costs. Eligible payments are not subject to income tax or national tax.

Which employees are considered eligible?

For eligibility, an employee must be performing duties imposed by their employer under homeworking arrangements, meaning, the employee is carrying out some or all their tasks at home.

HMRC guidance states that they look for a pattern or regularity in working from home by the employee. For instance, an employee works from home two days each week. HMRC will still consider it to be a regular event. This means if the employee varies the two days each week to work from home, HMRC would want it to be fixed two days of the week.

Taking work at home in the evening, which is not included by any kinds of arrangements is subject to go under an informal way of home working. Such cases are disqualified for tax-free reimbursements.

What expenses are covered in payments?

The repayments cover the reasonable additional costs employees draw during their home working period. There two approaches.

Firstly, the employer can pay a fixed £4 per week or £18 per month for monthly paid employees. The benefit of paying at this rate is that the employer need not justify the expenditure and the employees need not keep a record of their additional costs.

Secondly, the employer can reimburse the actual costs sustained by the employee.

The allowable expenses are:

  • Metered water
  • Additional insurance
  • Extra heating and lighting costs
  • Business rates ( if applicable)
  • Telephone or internet access charges

The costs that an employee can not include, irrespective of the fact that you work at home or not, are:

  • Council tax
  • Water rates
  • Mortgage interest or rent

For expenses as broadband internet connection, What HMRC says is, if the employee is already using and paying for a connection before starting work from home duty then that is an existing expense and cannot be reimbursed tax-free. However, if the employee is not connected to broadband and needs a connection to carry out his duties while working from home, then it would qualify as an additional expense, which the employer could repay tax-free.

The same conditions apply for the cost of a domestic landline rental. Only the extra bills sustained by the employee from home working can be reimbursed tax-free by the employer.

Case 2: employee seeking tax relief

If an employer doesn’t reimburse some or all overhead charges of the home working employees, then the employee is not automatically allowed tax relief on their additional costs. Tax benefit for extra costs will only be given if those are incurred Wholly, Exclusively and Necessarily for the employee’s work.

Which employees are considered eligible?

To claim tax relief, the employee must show their home as a workplace. HMRC will only accept home is a workplace where:

  • The employee carries out substantive duties at home. Here, substantive meaning, tasks that employees must complete which are considered a part of the central duties of their employment.
  • The completion of tasks requires the use of special facilities and such facilities are not available at the company’s premises. (Or the employee lives at a long distance from the employer’s premises that it’s unreasonable to expect them to travel such distances daily.)
  • The employees have no role in selecting whether they want to work at the premises or elsewhere before or after the employment contract is drawn up.

What expenses are covered in payments?

Once an employee successfully shows that their home is a workplace, then their way to claim the tax relief becomes clear. The following are the expenses, on which the relief can be claimed. These expenses, except for insurance, are quite similar to the costs that can be reimbursed by the employer. (Refer case 1)

  • Metered water
  • Additional heating and lighting

The following expenses are those on which, an employee can’t claim tax relief:

  • Water rates
  • Council tax
  • Insurance
  • Mortgage interest on the rent

If calculating allowable additional costs is not practical, then a claim for £18 per month of salaried (monthly paid) employees (£4 otherwise) can be made without justifying the figure. It does not cover business calls. It can be claimed separately based on actual costs.

Check which case applies to you and plan your work from home HMRC tax relief accordingly.

Scenario 2: Home as an office tax deduction:

This section is for the self-employed people. We are going to see how you can use HMRC tax relief rules for your home office.

There are two ways to go about it:

  • Simplified business expense: This is the first method. Here, a flat rate from your taxes is deducted based on how many hours you spend working from home every week. 
  • Actual costs: Here, you calculate your home’s running costs, e.g. rent and utilities. Then, you need to deduct the business proportion of that expense. 

Who can avail simplified business expense?

You can avail it if:

  • You are a sole trader
  • You are in partnership, and every partner is an individual
  • You invest more than 25 hours a month working from home
  • No VAT registered for you.

P.S: If your turnover is more than £85,000 /year, then you have to register for VAT.

HMRC rates for ‘home – office’:

Let’s understand this with an example of calculating simplified business expenses.

In the year 2018/19 say ‘person A’ contributed 150 Hours/Month working from home for 10 Months. On the other hand, in November and December, he has worked for 40 Hours/Month.

Person A paid £30 for a fixed-line and a broadband package.

Pretty clear from the table above, Person A is going to deduct £26/Month for 10 Months and £10/Month for November and December because he spent 40 Hours per Month. 

This gives us an equation: (26 * 10) + (10 * 2) = £ 280 will be deducted.

Expenses to include for ‘home – office’ deduction:

HMRC allows you to minus two costs types:

Fixed costs: The costs you can deduct from taxes are:

  • Rent
  • Mortgage interest (you can’t deduct part of the capital repayments)
  • Council Tax
  • Insurance (you could deduct the full cost of your insurance if it’s a separate one)
  • Repairs and maintenance

Running costs: The costs you can deduct from taxes are:

  • Phone and Broadband
  • Cleaning
  • Water and sewerage
  • Heating, lighting and electricity

This is a quick look out at how working from home HMRC tax relief takes place for two different scenarios. For all further information and services, contact us today and make sure you save all you should and deserve.   

Conclusion

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