Over the past few months, an unprecedented number of people within the UK have taken to working from home as businesses around the country close their offices in order to help stop the spread of Coronavirus.
Many pundits believe that home working, or a home & office working on a rotational basis, will become normal practice due to the success some firms have found when operating remotely.
With the increase of workers and businesses operating from home, you will likely find increases in your domestic expenses for heating, or electric etc. You are however, able to claim back some of these additional expenses at a rate of £6 per week.
Claiming Tax Relief as an Employee
There are 2 main ways that you can claim for this tax relief:
- Your employer can pay you an additional £6 per week. This will be a tax free allowance from your employer, so you keep the entire payment.
- Claim £6 a week tax relief against your taxable income. If your employer will not, or is not able to pay for your additional expenses, you can claim them directly from HMRC to deduct it from your total taxable income.
HMRC have streamlined the process making it easier for people working from home to claim the relief. They state that claims in line with the employers’ payment (ie, for £6/wk) will not need to be justified so you won’t need to keep receipts or prove you are eligible for the relief.
If you typically complete a self-assessment form, you can simply claim your relief through the same process. The majority of people will find it much easier though, to simply complete a P87 form.
The P87 form is designated specifically for making expense claims for use of home offices and therefore should make the process as quick and easy as possible. This form can be completed online through your government gateway account, or a postal form can be submitted.
In order to complete the form you will be asked your employer’s name and PAYE reference (which you can find on your payslip or P60), and your job title – to complete the postal form you will also need to provide your National Insurance number.
Claiming Expenses when Self-employed?
If you are self-employed and operating in a home office there are also limitations on what you can and can’t claim as a business expense. The majority of these stipulations encompass expenses that are used for both personal and business use, e.g. broadband internet access.
Another rule for claiming home office expenses is that you must be able to prove that you regularly spend time doing your job in the designated office space within your home. So unfortunately, you can’t just use your home office for a short period while the majority of your work is done on-site or at client offices.
Self-employed business owners can also claim tax relief on certain equipment that is essential in order to keep their business operational, and may also claim reasonable relief towards the cost of furnishing the office (for example chairs or bookcases) for business use.
If you’re a sole-trader, there are 2 ways in which you can claim tax relief on expenses
- You can calculate your actual costs by identifying the proportion of personal and business use for your home, eg. the proportion of utility bill expenses incurred by your business.
- Use HMRC’s ‘simplified expenses’ model meaning you can claim a flat rate of tax relief based on the number of hours you typically work from home. You must be able to prove you work from home for a total of 25 hours a month to qualify for the simplified expenses scheme.
In order to discover more about this simplified method of claimed for your expenses, you visit the .gov website to check if the scheme is right for your business https://www.gov.uk/simplified-expenses-checker
Claiming Expenses Through a Limited Company
If you are operating your limited company through your home there are again 2 ways in which you can calculate and claim your expenses.
- Using HMRC’s flat rate for expenses. This works much like the claiming of expenses by employees. You are able to claim £6 per week, (an allowance of £312 for the 2020/21 tax year), and again do not have to provide evidence or receipts to prove your expenses – this is likely the easier option for claiming.
- Renting out the use of your home to your Limited Company. You may be able to rent your personal workspace in your home to your limited company and claim that as an expense – if successful, this might mean that you can claim a larger amount than using the flat rate system.
In order to claim this higher rate of relief, you will need to draw up a rental agreement between yourself, and your limited company – If no formal agreement is in place then HMRC will likely identify any rent paid to you from your company as additional salary, which will be subject to taxation.
Renting the use of your home to your company could also be beneficial from a Corporation Tax perspective as your limited company can then deduct rental payments from your company’s pre-tax profit, meaning that those expenses will not be subject to Corporation Tax, however the rental income will be taxable via self-assessment for the owners of the property under normal rental income rules, therefore this is one to discuss with your accountant to be sure it’s administered appropriately.
When claiming home office expenses as an employee it is important to know that the way in which claiming tax relief works is retrospective.
As you will be claiming for expenses that you have already incurred, and as many of the claims will be due to the coronavirus outbreak, it might be more beneficial to hold off on your claim until you are back at work again – that way you can claim for the entire period you were working from home in one go.
When working from home while self employed or running a Limited company, the rules and regulations are vast and varied. It is alway worth consulting your accountant on what you may or may not be able to claim as an allowable expense before making a definitive claim for it from HMRC.
For more information on how to claim for these expenses, or for more detailed insight into exactly what expenses are and are not allowable, please contact us today by email firstname.lastname@example.org, or calling us on 01452 812491.