Working from Home - Tax Relief and Implications
The tax implications of working from home haven't changed recently - however due to the Covid-19 pandemic, people may be working from home more - or for the first time, and may be wondering if they are entitled to any tax relief for additional costs incurred.
The situation varies depending on if you are employed, or self-employed, so feel free to jump to the relevant section. The points below are just an overview, so please contact your adviser for specific advice on individual circumstances.
Your employer can reimburse you for any reasonable additional costs that you incur, that are wholly, exclusively and necessarily incurred as a result of you working from home.
The emphasis here is on 'additional' - in reality this is extremely difficult to quantify - costs such as broadband, electricity, telephone calls, water costs are rarely separated out on bills to the extent that you can prove the additional business use element.
The government has therefore determined a flat rate of £6 per week, £26 per month (£4 per week £18 per month pre April 2020) that employers can pay employees without tax consequences or proof of expenditure to cover these costs.
You can receive this if there is a home working agreement in place (this can be a verbal agreement), you are not working in the employers office on a regular basis, and during that time you are performing substantially all of your duties from home (for example working via a computer/telephone - a builder/plumber simply doing admin work would not qualify as their substantial duty is not being fulfilled).
If your employer had not compensated you for any working from home costs - whilst it is not legislated - it is generally accepted that you can claim tax relief up to these amounts via the submission of a self-assessment tax return or P87 online form. In reality if this is the only reason you need to submit a tax return, the time/hassle of registering and submitting a return, may outweigh the potential tax savings.
If you have had to buy extra equipment in order to work from home - again you need to satisfy the 'wholly, exclusively and necessarily' test in order for it to qualify as a business expense and not be subject to tax under the benefit in kind rules.
In terms of computers/laptops/desks/headphones etc if there is a company policy, that private use must be insignificant, and the equipment is necessary for your job, then there will be no additional tax consequences of the employer paying for these. If you have purchased these personally, then the government has indicated that during the Covid-19 pandemic, the rules will be relaxed to allow employers to reimburse employees for the items with no additional consequences (as long as the above are fully satisfied).
The rules around mobile phones haven't changed - employers can provide each employee with one mobile phone with no tax consequences.
The rules around self-employed people working from home are less restrictive - the test to be satisfied is 'wholly and exclusively' (no 'necessarily') and apportionment on a reasonable basis is allowable.
Self-employed builders and other itinerant workers can also get tax relief for the extra expenses incurred whilst they do their bookkeeping/admin from home, even if their main job is fulfilled on other premises.
The costs must be apportioned on reasonable basis - based on time and space, and the room must only be used for business purposes during the hours in question (so the kitchen table with the kids wondering around all day wouldn't qualify). However, beware of completely separating an area of the house for sole business use - whilst this would increase the tax relief you can get on running costs, it can affect the need to register for business rates, and could affect the principle, private residence (PPR) relief when you sell your home - which has significant tax consequences.
Costs that can be included are council tax/insurance/mortgage interest/telephone/broadband etc. However you must be able to provide reasons for the calculations, and once the time apportionment has been done this often works out to be less that you might think (detailed examples are given in government guidance here)
Again the hassle/time taken to collate all the bills, document detailed working hours and do the calculation, may not turn out to be significantly different to the flat rate allowances that the government allows under the simplified expenses below:
Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26
Tax reliefs are available - they are probably not as much as you think. In reality, consider how much extra costs have actually been incurred - once you factor in the savings on commuting (time and financial) and work wear, the home working costs are generally less significant than initially thought. For most workers, the flat rates will be a good approximation, but other calculations can be performed for those with specific requirements.