Many businesses have pivoted to full remote working in the wake of Covid as it has proved to be as effective in many cases, at least in the short term.
As we go through lockdown number 3 and many of us are back to working from home after a short period of being back in offices, we thought it would be useful to share some tips and tricks on limiting the impact of this financially.
Potential increases in costs include more electricity, broadband and heating. This also includes any adaptations made to your home as many have moved from kitchen tables to desks and more appropriate chairs.
In this blog we will explore both using your home a full-time office and being a employee who is temporarily working from home because of the pandemic.
To qualify for any of these tax deductibles you must have your home office as your main place of business. Working at your kitchen table to complete minor amounts of paperwork when you predominantly work elsewhere does not count.
WHICH HOME-WORKING CATEGORY ARE YOU?
There are four different categories you must fall under to claim back home-office expenses. Either be a limited company or unincorporated and these both then have either a flat rate or a higher amount.
1. Limited company
a. Flat Rate – You can claim a flat rate of £6 per week (£4 up to 5th of April)
b. Higher Amount – If you want to claim above the flat rate It is recommend you have a rental agreement in place between you and your company, avoiding the charges being treated as salary. The rent should be market related which can be challenging to figure out. As a result, the rental price can be worked out as a share of mortgage interest or rent, council tax, utilities, and buildings insurance. Ignoring halls, kitchens, and bathrooms if there are four rooms then you can claim ¼ of those costs. This is because typically only one room is used for work, although this may not always be the case.
i. Repairs – Any repairs made to the room you work in can be claimed in full. For general repairs, the same rule as above applies where it is a ¼ of those total expenses.
2. Unincorporated company
a. Flat rate – This is meant for sole traders etc and is claimed based on the number of hours you work.
b. Higher Amount – You cannot charge rent as an unincorporated company, so no formal agreement is required. Despite this you claim is calculated in the same way as the higher amount for a limited company.
USEFUL CAVEATS TO BE AWARE OF
While these claims seem simple to calculate there are some key factors to consider.
· Capital gains tax on a property sale – In spite of residential properties not being subject to capital gains tax (CGT) there us an exception if one room of the property is used as a home office. If this is the case the proceeds of the sale from this room could be liable to CGT. Simply put if you have a home office that takes up 10% of the total area of your house then 10% of any capital gained from the sale will be subject to CGT. This does not apply to people temporarily working from home.
· Use of the room: If you can try not to use that room entirely for business. Put exercise equipment in the room for example. Thus, making the room available for the business 90% of the time. This means the 1/4 we discussed earlier can then be reduced by 10% and the rental agreement specific specific hours and days to work.
· Phone and Broadband expenses: You home phone can only cover cost of specific business calls not the whole bill. Internet costs are not allowed unless the business has a separate connection. Your mobile costs can be fully claimed back if the contract is in the limited company name.
STAFF WORKING FROM HOME
Due to coronavirus restrictions many people are working from home, temporarily, even if they do not have a home office and it is not the primary place of work.
You can claim up to £6 a week in two ways;
1. Claim tax free from your employer – employers can choose whether to provide this but with many having cash flow issues it has been challenging.
2. Claim in tax relief – Because many employers cannot pay HMRC will give you a tax break of £6. So, if you are in the 20% tax bracket that equates to £1.20 a week and for 40% its £2.40
a. If you believe your costs are higher you can claim more but you will need proof.
This was adapted in October last year so you can no claim for the whole tax year. Meaning if you have worked at home at any point since 6 April 2020 you can claim. According to Money Saving Expert Martin Lewis, you can actually claim from March 23rd when lockdown started! The amount your worked from home is not relevant and it is an individual benefit meaning all those working from home in a household can claim.
Click here to claim
If you need any support making your claim or have any questions regarding this blog give us a call and we will support, you with what you can and cannot claim.
Book a meeting here or give us a call 07943 789 749.