Over the last ten years technology has advanced massively. However, whilst technology has moved on, travelling has become more and more difficult. Homeworking has become the answer for many but how have the tax rules kept up with these changes?
Are you an employee or self-employed ?
The tax rules differ considerably depending on whether you are self-employed, as a sole trader or partner, or whether you are an employee, even if that is as an employee of your own company. This factsheet considers the position for employees.
Using part of your home as your office
The rules for employees in relation to ‘use of home as office’ contain a specific exemption from a tax charge. This means that employers can make payments to employees for additional household expenses tax free, where the employee incurs those costs in carrying out the duties of the employment under homeworking arrangements. ‘Homeworking arrangements’ means arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home.
The exemption does not apply where an employee works at home informally so it’s important to get the agreement down on paper.
Where these rules are met, examples of the additional costs which can be paid by the employer include; heating and lighting the work area, the metered cost of increased water usage, increased internet access charges, home contents insurance, business telephone calls and also, where applicable, business rates.
However, unlike the self-employed, HMRC do not accept that a proportion of household fixed costs such as mortgage interest, rent, council tax or water rates are allowable.
HMRC accept that a £4 per week payment from the employer is acceptable without too much formality if the above tests are met. However, to justify a higher payment, you will need evidence to prove your case!
What if my employer doesn’t reimburse me?
If no payments are made by the employer then the employee can claim personal tax relief themselves if they can prove that they incurred additional costs ‘wholly, exclusively and necessarily’ for the purposes of their job. In reality this is extremely difficult – often nigh on impossible – as HMRC require the following tests to be met:
• the employee performs the central duties of their job from home
• those duties cannot be performed without the use of appropriate facilities
• no such facilities are available to the employee on the employer’s premises or are too far away
• and at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.
So the message for employees is to go for tax free repayments, not tax relief!
please do not hesitate to contact me for more advice on any tax related matters.
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