Claw back the cost of working from home
THERE ARE WAYS TO PUT CASH BACK IN YOUR POCKET IF YOU’VE SHELLED OUT TO SET UP YOUR HOME OFFICE, SAYS HARVEY JONES
MILLIONS of people have started working from home due to the pandemic and the trend looks set to continue as lockdown drags on and businesses discover it can cut costs and may boost productivity.
Whether you’re working from your kitchen, living room or even your bedroom, the benefits don’t just include being able to watch daytime TV or slob around in your pyjamas.
The lucky ones will get help from their employer towards additional costs, such as equipment, heating, lighting, water and broadband.
If your employer won’t pay, you should still be able to claim tax relief on £6 a week from HM Revenue & Customs (HMRC), under a new, temporary, flat-rate scheme.
You can claim even if you worked at home for just a single day, as long as it was due to coronavirus restrictions.
The tax relief is worth up to £280 for the past two tax years, with basic rate 20% taxpayers getting a maximum £125.
What can I claim?
Employers who require staff to work at home can give them up to £6 a week to cover the cost, which is free of tax.
Sadly many companies are struggling and say they can’t afford to pay their staff more, or refuse to do so. If yours is one of them don’t panic, because in this case HMRC allows you to claim tax relief on £6 of your weekly income.
Employees have been able to claim tax relief on the additional cost of working from home since 2003. HMRC simplified the rules during the first Covid-19 lockdown, and you can claim £6 without showing any evidence that you have incurred extra costs.
You can claim relief both for the 2020/21 tax year, which began on April 6, 2020, and the current 2021/22 tax year, which runs to April 6, 2022.
You can even do it if you worked at home for just one day, provided this was a necessity due to the pandemic.
How much do I get?
Tax relief is based on your tax rate. So if you pay income tax at the basic rate of 20%, you would get £1.20 per week, which is 20% of £6. That cuts your tax bill by £62.40 over the year, or £124.80 for the two years that the scheme is due to run.
This relief is worth more for higher rate 40% taxpayers, who get £2.40 a week. This adds up to £124.80 over one year, or £249.60 over two years.
This relief is paid by changing your tax code, which instructs your employer how much tax to take, and should be done automatically.
You can claim for the full year even if you only work from home part-time or one day a week, and use your workplace the rest of the time. It also applies if you are working at home while other colleagues are in the office.
You cannot claim tax relief if your employer has already paid your expenses or given you an allowance to cover them.
Working from home tax relief is paid individually, so for example, couples and flatmates can all claim if eligible. The simplest way to check if you are eligible is to search “working from home tax relief” and apply through the Government micro service, or online portal.
How do I claim?
Last October, HMRC launched its new P87 micro service, which simplifies the process of claiming expenses.
Don’t panic if you still haven’t claimed for the last tax year. You can apply for both last year and the current one at gov.uk/tax-relief-foremployees/working-at-home.
You need a Government Gateway user ID and password, which you can create if you do not already have one.
First, dig out your National Insurance number, a recent payslip or P60, and UK passport. Alternatively you can do it by phone, post or if registered for self-assessment, through your tax return.
What if I’m spending more than £6?
Your employer can provide office equipment and furniture, such as a laptop and desk, as tax-free benefits in kind.
This means you don’t need to pay any income tax and National Insurance on it, for the last tax year and the current one.
If your employer will not pay, then you can claim tax relief but the process is complicated, as you have to submit proof of extra costs, such as receipts.
Expenses include additional heating and lighting, metered water bills, home contents insurance, business calls or a new broadband connection, provided they were incurred as a direct result of working at home due to Covid.
You can only claim reimbursement for any increase in costs. So if you had broadband before you started working from home, this counts as an existing expense and cannot be reimbursed tax free. Also, you cannot claim mortgage interest or rent, council tax and water rates.
You may be able to claim tax relief on oneoff expenditure on equipment you have to buy to do your job from home, such as a laptop or printer. But office furniture, such as a chair and table, may be harder to justify and tax experts suggest seeking reimbursement from your employer.
Nigel Morris, employment tax director at MHA MacIntyre Hudson, says claim this by completing a P87 form at the end of the tax year.
“If you complete a self-assessment return, go to the section titled ‘using your home as an office’,” he adds.
What else can I claim?
Nigel says employees can claim tax relief for cleaning, repairing or replacing tools and specialist clothing, such as uniforms.
“Employees could claim tax relief on flat-rate expenses from £60 to £1,022, depending on your industry and occupation,” he adds.
Those who use their car for work can also claim for business mileage and fuel costs, although not the cost of travelling to the office.
Home workers who start racking up business mileage after lockdown eases must find out what qualifies as their permanent workplace, Nigel says.
“Just because you work from home, it does not mean it can be treated as a place of work for business mileage claims. Travel to your permanent workplace is likely to count as ordinary commuting, and ineligible for tax relief.”
Alex Duckett, boss of home working space provider Mhor, says more people are building home offices in gardens but the building itself is not eligible for tax relief.
“However, you can claim tax relief on office equipment, as well as thermal insulation and some wiring and plumbing,” he explains.
You can also claim tax relief on running costs, such as heating, lighting and repairs.
“If you are VAT registered, you can reclaim VAT on the costs of the building itself and the running costs, but talk to an accountant first.”
You can claim for the full year even if you only work from home part-time
What if I am self-employed?
The £6 rule only applies to employees. The self-employed have been able to get help via the SelfEmployment Income Support Scheme (SEISS).
This offers grants to sole traders and partners in a partnership with annual profits of less than £50,000, who receive at least half their income from self-employment.
There have been four completed rounds of grants under the scheme to date, worth up to 80% of average monthly trading profits, capped at a maximum of £7,500.
Claims for a fifth and final round covering the period from May 1 to September 30 will open in mid to late July at gov.uk.
Payments are subject to income tax and Class 4 National Insurance contributions.