Hundreds of thousands of people working from home could be missing out on a tax rebate worth over £300 a year.
Working from home: can you claim a tax rebate?
The coronavirus pandemic has transformed how we live and forced millions of people to work from home.
If this is the case for you (that is, you’re not working from home out of choice), you can claim tax back on certain business expenses using a P87 form.
It’s worth flagging you have four years from the end of the tax year to make such a claim.
What type of expenses can you claim? Business phone calls and the extra cost of heating and lighting your work area at home are just some examples.
This is the case even if you haven’t even kept any records of these expenses and can’t prove you incurred them – but only up to a maximum of £6 a week for the current tax year.
This used to be £4 a week in previous tax years.
If you wish to claim more than £6 a week, you will need proof you incurred those costs from home working.
Read this HMRC guidance on how to figure out for more detail on calculating the portion of tax relief you are entitled to.
So, what’s the catch? As mentioned earlier, employees can only claim for business expenses if they have to work from home, rather than working from home voluntarily.
For example, you can’t claim this relief if your employer offered you the choice of working from home and you took it, or if you persuaded your employer to allow you to work from home for any reason.
But you can potentially claim it if your employer can’t accommodate you in the office or if the nature of your work requires you to live far away – check out more examples on the HMRC website.
Regular homeworkers can ask their employers to pay them back for their home expenses free of tax and National Insurance contributions, but this is understandably a difficult time to request this.
Again, you don’t need to show proof of these expenses if it’s within the £6 a week limit.
'Hundreds of thousands' missing out on rebate
Figures released by the Government this week show less than 55,000 workers have so far claimed the rebate, which could be worth more than £300 a year.
However, Hargreaves Lansdown analysis suggests there are 'hundreds of thousands' of more eligible workers out there who've yet to make a claim.
Self-employed home workers
If you’re self-employed, did you know that you can get tax relief on a portion of all your fixed household costs?
This includes Council Tax and mortgage interest, as well as variable costs such as phone line rental, broadband, heating and electricity.
The key thing you need to figure out is what proportion of the rooms or floorspace (whichever is more reasonable) you typically use for your business and how much time you spend working in that area.
You can then use this to figure out what percentage of your household costs you can claim tax relief on.
Apportioning home working expenses
Let’s say there are four rooms in your home (not including bathrooms, hallways and kitchens), each roughly the same size, and you use one of these rooms exclusively for your business.
Since you use 25% of the space, you can claim tax relief on 25% of your household costs.
Unless part of your property is used exclusively for business purposes, instead of for work and domestic purposes, you usually won’t pay any Capital Gains Tax when you sell your home. Of course, it’s best to check with HMRC.
You’ll need to estimate the percentage of time the room is set aside by you for work compared to another purpose, as well as apportioning the floorspace you are using.
For example, let’s say you set aside a room in your equally-sized four-room property as an office and work at home full-time (40 hours a week), but for two weeks a year the room is also used as a guest bedroom (an average of about two hours a week).
You could reasonably divide your bills by a quarter to get the room’s expenses by floorspace, and then claim for 95% (40 out of 42 hours) of this sum for those two weeks.
Be aware that you may need to apportion your fixed costs differently from your variable costs, depending on the actual use and ‘identity’ of the room.
For example, let’s say you spend four hours a day working in the living room, and four hours in there in the evening watching TV with your family.
You could claim as much as 50% of the variable costs as half the time the room is in use and incurring variable costs is due to your work.
But you could only claim 16% (4 hours out of 24) of the room’s portion of the fixed household costs as the room is set aside as a living room and it is only used for business for a sixth of each 24-hour day.
Finally, you can claim 100% of your business phone calls, and should apportion the phone line rental by your need to make those calls. So, if your business calls make up 75% of the total phone bill, claim for 75% of the line rental.
All these calculations should be viewed as guides – you should always only claim what you believe is a reasonable amount.
There are more examples of calculations on the HMRC website, should you need them.
If all that sounds too complicated and you only use your home in a minor way for business – for example, writing up business records once a week – then HMRC will accept a reasonable estimate of expenses of, say, £2 a week (£104 a year) without making detailed enquiries.
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