Many people have been and are now working from home and want to reclaim expenses. Due to its popularity its not surprising that HMRC have been looking closely at claims.
The rules are different for employees and the self employed.
Companies, Directors and Employees
Let’s start with employees.
The first critical point is that employees can only claim expenses if they have to work from home, if they voluntarily choose to work from home they can’t claim.
Then there are basically 3 options for employees and directors:
- Claim £6 per week – You’ll get tax relief based on the rate at which you pay tax. For example, if you pay the 20% basic rate of tax and claim tax relief on £6 a week you would get £1.20 per week in tax relief (20% of £6).
- Claim a % of actual expenses – HMRC suggest –
You may be able to claim tax relief for:
- gas and electricity
- metered water
- business phone calls, including dial-up internet access
You cannot claim for the whole bill, just the part that relates to your work.
In addition if you have costs such business insurance, repairs of business equipment, cost of cleaning materials to clean your business work area (COVID being a key reason) these would be allowable.
Claims should be submitted on expense claim forms with supporting calculations.
Capital Allowances are available on business equipment.
Mortgage Interest, Rent, Rates are not allowable as HMRC say that costs must be ‘wholly and exclusively for business’ and HMRC are unconvinced that employees/directors meet this criteria.
3. Rent part of your home to your company – To do this you need to create a licence agreement (we have template if you need one) with your company in order to allow it to occupy part of your property. It then pays you rent and service charges and you then claim all your expenses under Self Assessment.
This means you will need to complete the property section of the Self Assessment return as you are effectively becoming a commercial landlord but it means you can recover all relevant overheads and variable costs, mortgage interest would subject to section 24 (so excluded and then used in obtaining the Finance Cost Allowance), you can also include a proportion of rent and rates.
Whilst you home is usually exempt for Capital Gains Tax (PRR) your home office once rented out will not be.
Self Employed including Landlords
The Self Employed are generally treated more favourably than employees when it comes to working from home.
There are basically 2 options
Simplified Expenses
You can only use simplified expenses if you work for 25 hours or more a month from home.
| Hours of business use per month | Flat rate per month |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
% of Actual Costs
You can claim a proportion of your costs for things like:
- heating
- electricity
- Council Tax
- mortgage interest or rent
- internet and telephone use
You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.
Example
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
