The Government has begun to lift some of the COVID-19 restrictions. However, it still recommends that, wherever possible, employees should work from home if they can.
Although some workers are returning to their usual place of work many will have to continue to remote work for some time – with some businesses deciding to move to homeworking altogether.
It is clear to see why some businesses may begin to favour home working following the lessons learned from this crisis, especially if they can reduce the costs of running a business.
Of course, the reality is that some of these costs will be transferred over to employees and contractors. So, what can employees and contractors do to reduce the costs of working from home?
Taxation is a key area where individuals can reduce or reclaim some of the costs of homeworking. To help with this our experienced team have answered some common questions about home working and tax.
Can I claim for equipment that I have purchased?
For most office-based employees, the obvious piece of equipment they will need to be able to work from home is a computer, but it could also include stationery and consumables such as printer ink.
HM Revenue & Customs (HMRC) provides exemptions in respect of items and equipment provided to employees to enable them to carry out their jobs.
Provisions covered by the exemption include stationery, office furniture, office and workshop supplies, as well as computer equipment.
The exemption may also extend to the provision of home telephone lines but only in circumstances where there is a clear business case for this.
Two further conditions need to be met for the exemptions to apply:
- The provision must not be used significantly for private purposes by the employee or a member of the employee’s family; and
- The provision must be provided solely for the employee to be able to carry out their duties and must not belong to one of the following excluded categories:
– Vehicles, boats and aircraft;
– Any construction, extension or alteration of the employee’s living accommodation, such as the installation of a loft conversion office space or a garden office.
Have the Government changed the rules at all in light of COVID-19?
The Government has announced a temporary tax and National Insurance Contribution (NIC) exemption that ensures that home office equipment purchased by employees, where reimbursed by the employer, does not attract tax or NICs.
The temporary exemption will affect expenses from 16 March 2020 (the day the Government asked that employees work from home where they could) until the end of the 2020/21 tax year.
To be eligible for relief the equipment must:
- have been bought for the sole purpose of enabling the employee to work from home as a result of the Coronavirus outbreak
- be exempt from income tax if it had been provided directly to the employee by or on behalf of the employer.
The move should ensure employees are not financially penalised as a result of changes in working arrangements during the pandemic.
What about the costs to my household?
You will likely incur additional costs, such as heating and lighting. Typically, for an employee, an employer can reimburse these costs tax-free where there is a ‘homeworking arrangement’ between the employee and the business and the employee must work at home under the terms of these arrangements.
A notable exception here is costs that are unaffected by whether or not an employee is working from home or not, like mortgage repayments or rental payments.
Similarly, the cost of existing broadband connections cannot be reimbursed tax-free, although new connections can be, where the employee does not already have a broadband connection.
What happens if my employer or client doesn’t meet these additional costs?
From 6 April 2020, an employer can pay employees up to £6 a week (£26 a month) to cover additional costs if they have to work from home. For previous tax years, the rate is £4 a week (£18 a month).
In circumstances where the employer does not meet the additional costs of an employee working from home – such as heating, water and electricity – but requires the employee to work from home, it may be possible for the employee to claim tax relief in respect of these costs.
Expenses for both personal and business use are not eligible for tax relief. Employees can use HMRC’s online tool to determine whether particular expenses would be eligible for tax relief here.
I am a contractor and not an employee and have been told that the support usually offered to employees does not apply to me?
Contractors often work via a limited company and are not classed as a worker, which may mean that they are not entitled to the same rights as employees.
However, contractors working from home can claim expenses for having part of their home used as an office.
To be eligible for relief you must ensure that you have a dedicated room/workspace available for work purposes.
This room should be adequately equipped for business purposes to indicate it is a genuine business facility and not part of your normal domestic arrangements.
HMRC are often very stringent on deciding whether contractors are eligible for home working expense. If you claim these expenses you must ensure you actually do some work there.
Spending a few minutes, a week in the office typing up an invoice or sending the occasional email may not be sufficient, especially if it isn’t related to generating income.
How much can I claim when I use my home as an office?
Most contractors will benefit from a general allowance of £312 a year towards household expenses. No records need to be kept to claim back this allowance.
However, you can claim over £312 in a year, if you provide evidence of why the expense was required.
The amount you can claim should be based on an appropriate proportion of the specific costs arising of light, heat, insurance, rent, rates and other household costs that arise from using your home as an office.
For example, let’s say one room in a house with four rooms is used as an office. It would be fair and appropriate for one-quarter of the total cost of running the home to be claimed.
Be aware though, if you are making a claim for phone calls these need to be on a genuine business line, or are claimed on a personal line using an itemised bill.
Remember you can’t claim back any expenses which could have a dual purpose, i.e. personal and business, such as line rental and broadband.
Each claim made should be fully justified as a genuine cost incurred as a result of business activity undertaken at your home office.
HMRC is likely to be undertaking a close review of homeworking expenses post-COVID-19 and will want to clearly see evidence to support claims or it may take action.
Can I claim for the cost of office furniture or equipment if I am a contractor?
If you do need to buy office furniture or equipment you may be able to claim it back through capital allowances.
Typically, anything you use in your work that is likely to last two years or more, apart from vehicles, that is wholly and exclusively for the use of the company, i.e. little or no private use, can be a company expense and reclaimed via capital allowances.
Expenses can be complex at the best of times and if you are unfamiliar with homeworking, but have been required to work from home due to COVID-19 you must seek out the support you need to claim back any costs.
To find out how our experienced team at Cogent Accountants can help you with this, please contact us today.