Since the outbreak of COVID-19 homeworking has become the norm for many millions of people.
A common concern is what, if any, recompense employees can get for any additional costs as a result of their new arrangements.
Employees:
You can claim tax relief for additional household costs if you have to work at home on a regular basis, either for all or part of the week. This includes if you have to work from home because of coronavirus (COVID-19).
You cannot claim tax relief if you choose to work from home.
Additional costs include things like heating, electric, business calls or a new broadband connection. They do not include costs that would stay the same whether you were working at home or in an office, such as mortgage interest, rent or rates.
You may also be able to claim tax relief on equipment you’ve bought, such as a laptop, chair or mobile phone.
You can either claim tax relief on:
- £6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) – you will not need to keep evidence of your extra costs
- the exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts
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). HMRC will include an allowance in your PAYE code so the tax relief is given through your salary. If you have incurred expenses in a previous tax year you can claim backdated relief for these – relief must be claimed within four years of the end of the tax year so currently you could go back to the 2016/17 tax year.
How to claim:
An employee needs to claim the expenses online using this link; HMRC will amend their PAYE code accordingly:
https://www.gov.uk/tax-relief-for-employees
If employment expenses are more than £2,500 per year, then the employee would need to complete a Self-Assessment return to claim relief.
Self Employed:
You can calculate your allowable expenses using a flat rate based on the hours you work from home each month. This means you do not have to work out the proportion of personal and business use for your home, for example how much of your utility bills are for business. The flat rate does not include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.
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
£
25-50 10
51-100 18
101+ 26
Alternatively, you can work out what proportion of all your household bills relate to business use. Generally, this is worked out using a ratio of how many rooms your house has and how much of these are used for business. If a substantial part of your home is used exclusively for business purposes this could lead to Capital Gains Tax issues in the future if you sold your home i.e. there may be a restriction to Private Residence Relief (which is the tax relief that allows any profit on the sale of your own home to be tax-free).
If you need further help or advice about this or any of the measures in place to help businesses affected by Coronavirus, please contact your usual M. B. McGrady & Co adviser.