QUESTION: I currently work from home three days a week and was wondering if there are any tax implications that I need to consider?
ANSWER: Working from home in the UK can offer several tax benefits, but it’s essential to understand both the potential advantages and the considerations before making a claim.
:: Working from home allowance: The UK government provides tax relief for employees who work from home. You can claim £6 per week from April 2020 without needing to provide evidence of your extra costs. If your expenses exceed £6 per week, you can claim the actual amount by providing evidence such as bills or receipts.
- Expenses for household costs: You can claim certain household expenses incurred due to working from home, including heating and lighting costs for the workspace, metered water costs for work-related use, and business calls (excluding line rental).
- Office equipment: If you purchase office equipment (such as a desk, chair or computer) for work you can claim the full cost of the equipment if solely used for work and provided by your employer. Tax relief is available on the cost if you buy it yourself and are required to work from home by your employer.
- Broadband and telephone: You can claim a proportion of broadband and telephone expenses such as such additional costs incurred for work-related broadband use and business calls on your home phone, but not the line rental.
- Travel expenses: If you need to travel for work purposes, you can claim mileage allowance for using your own vehicle or public transport costs.
On the working from home allowance, you can make a claim through your PAYE tax code, request a change via your online Personal Tax Account, call HMRC, or write to them. Alternatively use your self-assessment tax return and include your claim in your return if you complete one.
For household expenses and office equipment, request reimbursement from your employer, who can claim these costs as allowable business expenses.
If not reimbursed, claim the expenses on your self-assessment tax return or use HMRC’s P87 form for tax relief claims under £2,500.
Steps to claim tax relief:
- Gather evidence: Keep detailed records and receipts of all expenses.
- Complete the claim: Use the online P87 form for small claims or include larger claims in your self-assessment tax return.
- Submit the claim: Submit the P87 form online or by post to HMRC, or submit your self-assessment tax return through the HMRC portal.
There are downsides over complexity and record-keeping. There is an administrative burden to keeping detailed records of expenses can be time-consuming. Accuracy is required and mistakes can lead to complications with HMRC, including penalties for over-claiming or missing out on benefits for under-claiming.
Impact on Capital Gains Tax (CGT):
Using part of your home exclusively for business can affect your entitlement to private residence relief on CGT when you sell your home.
Some employers may not have clear policies for reimbursing home working expenses, and you may need employer approval for certain expenses, which might not always be granted.
There are strict criteria and HMRC requires expenses to be “wholly, exclusively, and necessarily” incurred for work which may rule certain costs out. The flat-rate allowance may not cover all additional costs you incur as a result of working from home.
Adjustments are required and you should ensure your tax code is updated if your circumstances change to avoid underpayment or overpayment of tax.
Seeking professional advice for complex situations can incur additional costs.
Calculating the exact proportion of shared household expenses can be difficult and requires careful calculation.
In conclusion, you need to weigh the potential savings from tax relief against the administrative effort and any potential downsides. Keep meticulous records, understand HMRC guidelines, and consider consulting with a tax professional to navigate these complexities and make informed decisions.
- Shane Martin (s.martin@fpmaab.com) is tax director at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
