Tax relief while working from home
03 December 20  /  Insights

Are you claiming your tax-free allowance for working from home?
 
With so many people across the country working from home as a result of the coronavirus pandemic, it’s important for employers and employees to be aware of the rules regarding ‘allowable expenses’ for home office use.
 
On 6th April 2020, due to the pandemic, HMRC increased the tax-free allowance that an employer can provide to their employees for additional expenses incurred while working from home - from £4 to £6 a week. As long as this flat rate is paid, there’s no requirement for the employee to maintain records.
 
Paying more than £6 a week

The employer can pay more if they wish, but will need to provide evidence that payments are made ‘wholly and exclusively’ for the employee to carry out their employment duties. (If evidence cannot be provided, the additional payment will be treated as salary and subject to PAYE. For this reason, it may be easier to stick to the flat rate tax-free allowance of £6 per week.)
 
If an employee wants to calculate the additional cost of working from home, payment should cover the additional costs of gas and electricity consumed in the room used for work and additional costs of metered water used, along with unit costs of business telephone calls. The payment cannot cover council tax, mortgage payments, house insurance, water rates and use of the internet.  
 
Reimbursement for home office equipment

If an employer wishes to reimburse an employee for costs incurred buying equipment for home office use, they can do so without having to pay tax or National Insurance during a special exemption period from 16th March 2020 to 5th April 2021 - as long as the equipment was bought specifically to allow the employee to work from home during the coronavirus outbreak. (Employers will also need to verify that had they provided the equipment directly to the employee, it would have been exempt from income tax.)
 
No joy from your employer? Apply direct

If an employer doesn’t provide any allowances, or doesn’t provide reimbursement for office equipment purchased for home office use, employees can claim tax relief directly from HMRC either via their self-assessment tax return or by completing form P87.
 
Beware creating a home office!

Some employees may be tempted to create a stand-alone office in a particular room within their house, thereby allowing them to claim more expenses for ‘business use’, such as a proportion of all household costs and mortgage payments. It’s advisable to think hard about doing this, as there may be unexpected consequences.
 
For example, if you claim income tax relief for this ‘business use’, you may lose Capital Gains Tax relief. The vast majority of taxpayers don’t pay CGT when they sell their main home, but this may be restricted if a particular room or area of the house is used exclusively for business, with no personal use.
 
The best way to avoid this trap is to show that the room has a dual purpose, which may be as simple as placing a sofa, tv or children’s computer in the workroom, showing it’s also used for personal reasons. When making an expenses claim, you could factor this into the calculation. For example, if the room is used for 12 hours a day, you could claim for 8 hours’ usage out of the 12-hour period. Likewise, if as a director or employee, you are charging the company rent for use of the office, the terms of the rental agreement should stipulate that the room is used for business only during specific times in the day.
 
Help on hand

Our basic advice regarding home office use is to consider very carefully what you are claiming in order to avoid incurring unintended taxation consequences further down the line. If this article has highlighted the need for an accountant, legal or financial support, we are happy to introduce you to our connections. Likewise, if you’d like to discuss your financial future, current financial plan and desire to implement a financially independent early retirement plan, please get in touch. Either call us on 01865 208 000 or email us at: info@mathewscomfort.co.uk

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