If you can cope with the relative social isolation and are not easily distracted by domestic issues, home-working offers a practical solution where it is not possible to carry out your duties at a business premises. Working hours are flexible and can be fitted around family or other personal obligations, as well saving on costs such as travelling and subsistence or providing business-only accommodation. Where other costs are incurred as a result of working from home, reimbursement or allowance can be claimed according to your circumstances.
If you are self-employed:
HMRC will not allow you to claim household expenses unless they are “wholly and exclusively” for the business. For instance the cost of installing and using a dedicated telephone line for the business is allowable, but no claim can be made, for example, for heating or water as they have a duality of purpose.
It is possible, however, to claim an allowance for “use of home as office”. For a small business where a room at home is used for attending to administrative matters for a few hours a week, the allowance is minimal – probably no more than £5 per week.
If you wish to claim a greater amount, you will need to keep a record of your bills and details of the amount of time spent to justify your figures. HMRC’s agreement will also depend on the number of rooms used in proportion to the size of your home, how many other people reside there and what equipment you use, if appropriate.
There are pitfalls however, particularly with larger claims in that it may affect your home insurance or your mortgage arrangements, particularly if you are using specialist equipment or are likely to have visitors to your home in connection with your business activity.
Your Local Authority may also consider that you should be assessed for business rates especially if you have a dedicated area, such as a garage conversion or a purpose-built conservatory. In such a case if you sell your home your Principal Private Residence Relief may be affected resulting in a liability to Capital Gains Tax on the business portion of the premises.
If you are employed:
You can claim expenses incurred and not reimbursed by your employer as a result of working from home, IF
- you are obliged to pay those expenses AND
- they are “wholly, exclusively and necessarily incurred in the performance of duties as an employee”.
Working from home must be compulsory (ie., because it cannot be done elsewhere) and considered significant. Claims are made on your SA return.
Where working from home is voluntary, there are three options
- You can claim actual costs (proof required) which must be submitted to your employer.
- You can claim an estimated agreed company rate scaled according to a sample of employee expenses. This should be claimed on your SA return.
- You can claim the HMRC agreed rate of £4 per week, again on your SA return.
If you are a Director:
It is possible for you to enter into a formal licence agreement with the company whereby you receive an agreed rent for the use of a room in your home. This can be treated as an expense by the company and declared by you as rental income. Any relevant expenditure incurred “wholly and exclusively” in providing the accommodation to the company can then be allowed as a deduction from the income.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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