Claiming for the use you make of your home in running your business requires some complex calculations. That’s why lots of accountants just don’t bother. But we do, every time, because believe me – it’s worth the trouble.
Working from home has become much more common in 2020 and it’s made a lot of people think, hold on, how is it fair that I’m paying for all this extra heating and electricity out of my own pocket?
The Government has responded with a quick change to simplify the rules on claiming tax relief for home working. As of April 2020, employees can claim £6 a week, without even having to keep receipts.
This comes in addition to an existing simplified flat-rate scheme open to self-employed people working from home for 25 hours or more each month.
In general, though, we tend to avoid these easy-calculation schemes when we’re preparing tax returns for our clients.
Sure, they might work for people who aren’t especially tax savvy and just want to keep their return simple, but in most cases you’ll be better off keeping proper records and filing an accurate, detailed claim based on actual usage.
Employees working from home
There are a couple of basic principles to bear in mind for employees working from home, including directors employed by their own limited companies.
First, you can’t claim tax relief just because you’ve decided you fancy working from home with the cricket on the radio and your slippers on.
If it’s not a necessity, as far as the tax authorities are concerned, any additional costs you’re incurring are a choice so, basically, tough luck.
COVID-19 has actually helped make this point clearer: lots of people who would love to go into the office can’t, because they’re following Government advice to work from home if at all possible.
Secondly, it’s worth looking at what ‘additional costs’ actually means. In the case of employees, it covers stuff like:
- water bills, if they’re metered
- home contents insurance
- business phone calls
- new internet connections.
Picking up on a couple of details, note that it’s phone calls you can claim for – not phone bills. You’ll have to use itemised bills to keep notes of which calls were for work and which were personal.
Also, you can’t claim for your monthly broadband payment – only for any costs incurred because your home internet isn’t adequate for working from home (all those video calls!) and needs upgrading.
And you can’t claim for things that you have to pay for anyway, whether you’re working from home or not – mortgage interest, rent, council tax bills and so on.
Home office expenses for self-employed people
The rules are slightly different for self-employed people who use their home as a business premises.
The overarching principle here is the same – you can’t just claim everything as business expense, only what actually relates to your work.
In practice, that means doing some detailed calculations to work out a reasonable claim. If you’ve got an eight-room house, for example, and use one as an office twelve hours a day, six days a week, you’ll need to work out what portion of your heating bill can realistically be said to cover your workspace, during working hours.
Like I said at the start, it’s fiddly, but worth it.
And actually, it’s really easy if you just let us do it for you.
Get in touch to find out whether you could be paying less tax.