Working from home is something many of us have been subject to during the UK-wide Coronavirus lockdown. It certainly won't be something many of us think about, but there are tax implications in doing so ...
Most employees will be able to claim some degree of tax relief on many of their bills because they have been told to work from home by their employer. This includes a small portion of lighting and heating and use of their broadband and telephone.
But they can only claim tax relief if they have been asked to by their employer, not if they have chosen to. The criteria are as follows:
- The duties that the employee performs at home are substantive duties of the employment. 'Substantive duties' are duties that an employee has to carry out and that represent all or part of the central duties of the employment
- Those duties cannot be performed without the use of appropriate facilities
- No such appropriate facilities are available to the employee on the employer's premises (or the nature of the job requires the employee to live so far from the employer's premises that it is unreasonable to expect him or her to travel to those premises on a daily basis)
- At no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer's premises or elsewhere
So, where the employer's offices are closed because of COVID-19 it is likely HMRC will accept a claim for tax relief on a proportion of the expense of running the home.
Self-employed individuals are well used to dealing with home running costs for their business as many, but not all, can be deducted from their turnover to work out their taxable profits. There are two ways to do this, the simplified way and the in-depth way.
The simplified way is for self-employed people to use a flat rate based on how much they work from home each month. This really does make it easy for them because it means they don't have to work out what percentage of what bill was for business and what was for personal use.
The in-depth way is to calculate the actual running costs, done both fairly and on a reasonable basis. HMRC believe the best way to do this is to divide the total bills for the home by the number of rooms used for business.
For some individuals, these will be straightforward calculations,, but for others, it can quickly become very complicated which is when it is strongly recommended that professional tax advise be sought.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.