Home Office Costs

Home Office > Working From Home Tax Benefits

Throughout the pandemic, many people have been forced to work from home rather than from their normal office space. Did you know that you may be able to claim tax relief if you have had to work from home on a regular basis? This even includes if you have only had to use your home as an office for part of the week due to COVID-19. You can’t claim tax relief if you choose to work from home normally though.

What Can I Claim For?

As you have been using your home as your place of work, you will be able to claim back costs for a percentage of your heating bills, electricity bills, water bills, home contents insurance, business calls and if you had to have a new broadband connection installed. The tax relief doesn’t include things that would stay at the same rate whether you were working from home or in an office. This includes things like mortgage repayments, rent or council tax.

If you have purchased any office equipment to allow you to work from home, such as a desk, chair, laptop or mobile phone you may be able to claim tax relief on that. The Gov.uk website goes into much more detail about what is eligible to be claimed as tax relief and what isn’t.

How Much Can I Claim?

The set amount which the UK Government has stipulated people can claim for working from home is £6 a week starting from the 6th April 2020 (this was £4 a week for previous tax years). You will not be required to keep evidence of your extra costs if you choose to claim this set rate.

Alternatively, you can claim for the exact extra costs that you have incurred above the weekly amount. If you chose the option you will have to produce evidence of these costs - receipts or bills of your extra expenditure will be fine.

Tax Relief On The Claim

You will not be eligible to pay the full tax on this Government benefit and will be given some tax relief, according to the rate at which you pay tax normally. This means that if you pay the 20% basic rate of tax and claim the full £6 a week, you will receive £1.20 per week in tax relief (20% of £6).

Your accountant should work with you at your end of year accounts and include this tax benefit within your accounts, but if you would like any more information regarding this scheme please do not hesitate to contact us.

OR You can license part of your home through an agreement to your company

As we have already mentioned in our earlier article, it is possible for directors to claim a work from home allowance under HMRC rules. This allows the director to reclaim an element of the running costs of the work from home office space. Unlike the self-employed, directors are not allowed to claim for a proportion of rent or mortgage interest. They are however, allowed to charge rent to the company for the occupation of the property.

The ‘commercial’ rental income must be declared in the land and property section of the director’s personal tax return.

• If the rent is charged at the same rate as the proportion of costs, then income will be offset by costs and there will be no rental profit to declare.
• If the income exceeds costs, there will be a taxable rental profit declared on the tax return.

A rental agreement should be put in place to evidence the commercial arrangement between the director and the company. The director then becomes the company landlord and is allowed to charge rent. the commercial agreement then allows the director to declare a proportion of costs in their personal tax return.

Rental income is not subject to National Insurance which makes it an effective way of withdrawing money from your business.

Setting up a formal agreement

• A non-exclusive licence may be created for the company to occupy an office during their trading hours – typically a home office is available for family or personal use outside out of trading hours.
• The intention to enter into the agreement should be evidenced in Board Minutes.
• The agreement should be put in place before or at the point of occupation and not backdated, and must be in joint names (affecting both landlords personal tax returns) if the property is joint owned.
• Rent may be below but should not exceed local commercial rates or it may be viewed by HMRC as being disguised distributions to the directors.
• Rent can include service charges for the incremental costs of heat, light and power etc. These should be calculated to reflect proportional costs so they don’t create a gain in your personal tax return.
• The householder should make sure that they are allowed to enter into such an arrangement with their mortgage provider, landlord and they should also make sure that the agreement would not affect their own household insurance.

Consider

• The rental licence must be justified and the director must be able to evidence that they genuinely work from home and these costs are incurred wholly and exclusively for the purpose of running the business.

To licence or lease

A non-exclusive annually renewable licence for the use of a home office is far more flexible and forgiving than a formal lease which is governed by the Landlord and Tenant Act which could have Capital Gains Tax and Business Rates implications. If you are leasing substantial or separate buildings then a lease formal lease agreement would be appropriate and you would need to consult a lawyer to draw up the agreement.