Where the Heart Is? Considering the Tax Implications of Homeworking
Homeworking has grown in popularity in recent years, with research revealing that as many as 1.6 million individuals regularly worked from home in 2017. Here we examine some of the tax implications of homeworking.
Determining your employment status
It is important to determine your employment status for tax purposes, as the tax rules can differ considerably. Categories of employment status include workers, employees, the self-employed and contractors. Here, we focus on the tax implications of homeworking for self-employed individuals and employees.
Homeworking and the self-employed
Self-employed individuals can claim tax deductions for expenses that are incurred ‘wholly and exclusively’ for the purposes of their trade or business. Those who use their home as a workplace are able to claim tax relief – however, expenses may need to be apportioned.
The self-employed can claim for utilities such as heating and electricity, as well as mortgage interest or rent, and a range of other resources, including use of the internet and a telephone. It is important to note, however, that allowable expenses only apply to business costs – if you use an item or a resource for personal reasons, relief cannot be claimed.
In relation to the cost of equipment, self-employed individuals can claim tax relief under the capital allowances system. Reliefs for equipment and supplies used at home are available on the business proportion of the assets.
Employees working from home
Employees who perform all or part of their job from their home are able to claim specific reliefs and allowances. They cannot, however, claim tax relief if they have voluntarily chosen to work from home.
Employees can only claim for supplies and items related to their work (for example, the extra costs of electricity and heating for their workspace), and cannot claim for resources which are used both in the course of doing business and in their personal life, such as rent or access to broadband. Employers may choose to pay their employees up to £4 per week in order to cover any additional costs that may arise as a result of working from home.
Tax relief for equipment
As for self-employed homeworkers, businesses are able to claim capital allowances under the Annual Investment Allowance (AIA) for costs associated with supplying equipment to homeworking employees. There will be no taxable benefit on the employee, provided that the private use of business assets is insignificant. Employers may wish to draw up a policy to outline that the provision of any equipment to the employee is for work purposes only.
Tax relief for travel purposes
HMRC guidance outlines that the availability of tax relief for travel expenses is unaffected by whether or not an employee’s home is also their workplace. It also suggests that travel expenses from an employee’s home to a permanent workplace will only be eligible for tax relief if the journey ‘qualifies as travel in the performance of the duties of the employment’.
However, HMRC also states that, where an employee performs ‘substantive duties’ at home as an ‘objective requirement’ of the job, it may accept the employee’s home as a workplace for the purposes of the travel in the performance of the duties rule. In such cases, employees are entitled to claim tax relief to cover the costs of travelling from home to other workplaces.
Employees who work from home are also able to claim tax relief on expenses incurred as a result of travel between home and a temporary workplace.
We can help you to obtain any tax relief you may be entitled to – contact us for more information.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.