WORKING FROM HOME
Working from home is a modern phenomenon that appears to be becoming more popular. Be aware that if your employer does not offer the homeworking alternative, the probability of being able to deduct even the additional expenses you incur is greatly diminished.
Many of us are working from home. But what are the tax implications of working from home and what are the pitfalls?
An employee can work from home either voluntarily if allowable by their employer or as requested as part of their employment. This gives rise to additional costs that they would not incur if they were working at the office.
Additional costs are such as extra light and heat in the area you work, additional phone costs and more printer and cartridges. Sometimes insurance companies charge a premium if any ‘business’ is carried out at home. Council tax is another example of increased costs if work is done on a regular basis from /home.
Fixed costs that do not increase due to homeworking (such as cost of providing a phone line for the internet) would not be examples of additional costs as they would be incurred by the employee, whether or not they worked at home.
However, if employee did not have an internet connection prior to the homeworking and it is needed to be installed only for their homeworking, this would be an additional cost.
Other costs such as rent, mortgage payments and interest and water rates (not on a water meter) would be excluded, again because they won’t increase due to homeworking. But the cost of making the home ready for an employee to work at home would also not be an example of additional costs. Renovations, furniture or office equipment are too far removed from the home working from the home working to be relevant incremental costs.
Employers are able to make reasonable payments to employees to cover such costs as long as the costs were incurred in carrying out employee’s duties. These are tax free receipts where homeworking is part of an arrangement where employee ‘regularly works at home’.
The employer is not restricted by statute as to how much they can pay for expenses , and moreover, no records normally need to be kept.
However, HMRC states that where payments exceed £312 a year, the employer should keep records to prove that the higher payments were required to reimburse the extra costs of working from home, and those costs could be seen as ‘reasonable’.
Section 316A sets out 2 tests to qualify as ‘homeworking arrangements’:
Arrangement between the employer and the employee, and
The employee must work regularly at home under those arrangements
The amount is £6 a week as from 6 April 2020 and it was £4 a week for prior period up to 5 April 2020.
Alternatively calculate additional costs of heating and lighting the work area, cost of additional water use, addition cost of business calls/internet access, additional cost of insurance.
Also where an employee is not offered the homeworking costs by their employer, they can deduct the costs under a different part of the income tax legislation.
This is only a small introduction as there are costs that are not part of the homeworking arrangements scheme and to know exactly what costs must be offset for the purpose of employment.
Working from home is a modern phenomenon and one that appears to be only becoming more popular. Be aware that if your employer does not offer the homeworking alternative, the probability of being able to deduct even the additional expenses you incur is greatly diminished.
Contact AccountingPreneur @ firstname.lastname@example.org to know how it will precisely apply for you or your business.
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