It is fair to say, that over the past 18months, more people have been working from home than ever before. For many, lockdown forced companies to find new ways for employees to work from home productively, and whilst there may be a push at the moment to try and get some employees back into the office, some employers are embracing this new working from home culture and allowing more flexible working than in pre pandemic times.
However, of course, if you are now spending days working from home instead of at the office, you may be incurring increased home costs (even if you are potentially saving on your meal deal lunches!). So, what can you claim if you find yourself now working from home? The rules are slightly different for contractors working through a limited company (PSC), and for sole traders, so below we take a look at the different allowances available.
Use of home for PSCs
There are two options when it comes to claiming for a ‘use of home’ allowance through a limited company (whether as a director or employee):
1) The first is claiming the HMRC guideline rate of £6 per week, or £26 per month. This can be paid by an employer to an employee (or company director) working regularly from home without the employer having to justify the amount paid, and no records need to be kept to demonstrate the additional expenditure. This can be paid as an expense to the employee/director, or, if the company does not want to offer use of home expenses, it can be added to the employee’s tax code to allow them to obtain tax relief on the relevant amount (this can be requested online), or, if the employee completes self assessment returns, they can add this in as an expense on their return for the year.
2) Alternatively, if you believe that working from home costs you more than the £6/week, you can instead calculate a more accurate figure to determine how much it truly costs you to work from home. This will only usually end up more beneficially than the guideline allowance if you work a significant amount from home and if your related costs have increased substantially because of it. In this calculation, you would need to work out the incremental cost of working from home and then reasonably apportion it between business and personal use (usually taking into account time spent working from home and area of floor space utilised). You are not able to include rent, mortgage payments, insurance or council tax unless any have increased as a result of you working from home.
It is also worth mentioning that anything incurred that is specifically business related, for example, business calls on your home landline or upgrades to broadband, or home insurance that may be required to allow you to work from home, can be claimed as any normal business expense.
Use of home for sole traders
Claiming for a use of home allowance is slightly different if you are a sole trader. Once again, there are two options:
1) If you work from home for 25 hours a month or more, you can use HMRC ‘Simplified Expenses’ which allow you to claim a flat rate amount per month based on the number of hours you work from home. These are:
• 25 to 50 hours – £10/month
• 51 to 100 hours – £18/month
• 101 hours plus – £26
With this option, you again don’t need to retain receipts. This flat rate also doesn’t include internet or telephone expenses, so you are still able to claim the actual business proportion of these bills.
2) However, if you mainly work from home, or have a reasonable home office space, it could be more beneficial for you to use the proportion of home method. This is much more complicated as it involves looking back at yearly bills and performing calculations, but could well be a worthwhile annual task.
To calculate this, you will need to:
– Work out your home office costs (to include; heating, electricity, council tax, rent/mortgage interest (interest element only), home insurance and water).
– Work out the proportion of your home that is used as your office, this can either be done on floor area or by taking the number of rooms (not including kitchen, toilets or bathrooms) and working out the office space as a percentage.
– Work out the proportion of time that you spend working from home over a 7 day week as a percentage.
You should then take the home office costs and first multiply them by the percentage of home used, and then multiply that figure by the percentage of time worked from home. This will then give you your final use of home expenses figure.
As you can see with all the options above, claiming anything other than the guideline allowance or simplified expense allowance can get rather complicated, so it is always a good idea to check any use of home claims with your accountant before including them.
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