Companies are looking to implement hybrid working regimes between the office and home working. But what tax relief is available in the UK for employees, directors and self-employed individuals working from home?
We highlight below some of the common additional expenses that may be incurred due to working from home, along with whether tax relief may be available. These are set out as a guide, and specific advice should be taken for your circumstances if relevant.
|Sole trader / Partners / Members of LLP||Employees or Directors|
|How to Claim||Include expenses within the accounts prepared.
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. HMRC would normally expect the business to confirm that such expenses are wholly and exclusively in the nature of the trade.
|The company may reimburse the employee/directors expenses via their own expense procedures. There is no obligation to do this. If the latter is the case, the individual would need to register for self-assessment to claim against such expenses against their employment income on a Self-Assessment Tax Return.
Any claims must be substantiated, and records/receipts kept in case of HMRC enquiry. The difference for directors is that the expense must be wholly, exclusively and necessary (WEN test) within their duties as an employee.
|Telephone, Mobile and broadband costs||If you have a phone for work and personal use, you can claim the business element through the accounts. A proportion of the business costs can also 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 is 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 made on line rental costs as it does not meet the WEN criteria and is seen as a duality-purpose cost (you will have had to have paid the cost 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 Expenses)||The 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
|Employees are currently entitled to a deduction of £6 per week, or £26 per month (excluding telephone/broadband) for each week that they are required to work at home. This covers the extra light, heat and energy costs.|
|Working From Home – (Actual Costs)||1) Calculate your total yearly costs. As a self-employed individual, these 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).
2) Calculate the percentage of time the room is used for business purposes. For example, 8 hours used for business but room used for a total of 12 hours per day = 66%. It should include all usage, not just for one individual. It should never be 100% for capital gain tax purposes.
3) How many rooms do you use for business multiplied by the number of rooms in the whole house (excl. bathrooms) (C&D). Final weekly claim = (A/52) x % x (C/D)
|Any employees who wish to deduct over £6 per week/£26 per month are expected to keep records and to confirm how their figures have been calculated on additional light, heat and energy costs only.
Other costs such as rent, mortgage payments, non-metered water, and insurance do not meet the wholly, exclusively and necessarily criteria in the performance of duty rules and cannot be claimed. This is because these amounts would have been payable anyway.
In limited circumstances, directors are potentially able to claim rent costs. However, this is rare and often difficult to prove.
|Office equipment||You can claim tax relief on the full cost of substantial equipment, such as computers or workstations.
Relief is normally claimed through capital allowances as they would be considered a fixed asset.
|Mostly, the company would provide any equipment for the individual to perform their duties. As long as there is no significant private use of company assets, there are no tax implications. If the individual left the business, the company would require the assets to be returned.
Direct reimbursement to employees is rare. If the individual is required to pay for office equipment, with the company reimbursing them, unless it is part of contractual obligations, the asset is personally bought by the individual. The company has no access to the asset after the individual leaves.
If you are not reimbursed, you need to prove the WEN test before claiming from HMRC. For example, if an individual had a computer desk before they were employed and just renewed this, they cannot make such a claim)
|Use of Personal Vehicle – Mileage Claims||Individuals who use their 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. It is important that business mileage records are kept. These must include 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 the depreciation of the vehicle.
|Use of Personal Vehicle – Actual Costs||A self-employed individual can calculate the total expenditure on the vehicle during the accounting period for running and maintaining the vehicle. This includes:
The individual can claim the business percentage of these costs, normally calculated by business miles over the total number of miles completed during the year.
|N/A for individuals, mileage claim expense details should be used.|
|Other travel costs||Individuals can claim for other travel (taxis, trains, etc.) parking, tolls and subsistence, including overnight stays. These must remain at a reasonable level.||No different to sole traders, but companies have expense procedures in place for such expenditure incurred in most cases.|
It is always beneficial to seek an accountant’s advice in such matters. This is a complex area of legislation. Any errors could prevent tax relief from being given by HMRC. For more information on the possible tax reliefs, contact Lucy Mangan, Head of Business Tax at Menzies LLP.
Menzies is a top 20 leading firm of accountants, finance and business advisors that operate out of a network of offices across Surrey, Hampshire and London, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 400 employees and an annual turnover of more than £40m.