Post Covid Homeworking – Sole Traders & Employees-What Can Be Claimed?

Like it or loathe it, homeworking has become necessary for many and the adoption of the practice was somewhat rushed. But what are the rules of working form home from a tax perspective? ABC reports back after reading an article published by AAT, our supervising professional accountancy body.

Sole Traders

The same mantra applies to homeworking as to other business expenses, that it has to be ‘wholly and exclusively for business purposes’, and not of a capital nature.

Now obviously your home is not exclusively for business purposes, but there is a caveat. If you say it has a dual purpose, business and personal and have a clearly identifiable business proportion, then you can have that business proportion as a tax deduction.

You need to find a sensible way to apportion the costs, perhaps the number of rooms. So if you use the spare bedroom as your office and it is one of six rooms then you can claim one sixth of the expenses.

To avoid any capital gains tax implications further down the line, you need to have a domestic use for the room as well, say the children use the computer in the evening, just as long as it isn’t exclusively for business.

You can then calculate the proportion of fixed costs such as mortgage, council tax etc. There is a simpler way, HMRC have a ‘use of home as office’ flat rate that can be claimed instead of doing all the calculations for home expenses but does not include expenses such as telephone and internet charges. You can claim these ‘simplified expenses’ if you work 25 hours per month or more from home as follows:

  • 25-50 hours per month of business use – Flat rate £10 per month
  • 51 to 100 hours per month business use – Flat rate £18 per month
  • 101+ hours per month business use – Flat rate £26 per month

Employees

If you are an employee working from home, the above does not apply. It is much harder to get any tax relief. The tax relief that is available is to cover any additional costs created by working from home, not to cover the fixed costs that would be there whether you worked form home or at the office, such as mortgage and council tax.

The relief available is from the Income Tax (Earnings and Pensions) Act 2003.

  • S316A provides that an employer and employee agree that the employee will do some homeworking and the employer will pay up to £6 per week tax free to cover the extra costs that otherwise the employer would pay for in the office (heat, light and lots of cups of tea!). This figure can be higher but would need to be fully justified. Due to the pandemic the need for a formal agreement has been relaxed until at least April 2021.
  • S336 is where the employer does not pay these costs and the employer seeks to claim tax relief on the expenditure direct from HMRC. This is much harder to get but HMRC do offer an online claim facility and if successful the claim will result in an adjustment to the employees tax code.

There have been instances where the employee charges the employer a rent for the room they are working from in their home, but this rent is taxable. Often it is directors who use this, so the company has an extra taxable expense to reduce its tax but the director has extra income to tax, it just moves the tax around. Nor can they claim the £1000 property allowance as a director is a connected party to a company and this is excluded from that benefit.

Hope that helps! – ashwater.co

Published by Holly

Licensed accountant and bookkeeper, sole trader, looking to save business people the tedium of record-keeping and accounting as I enjoy it!

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