For obvious reasons, the way we work has changed over the course of 2020.  What initially felt like a temporary, enforced adjustment has become a fundamental shift with businesses committing longer term to a more flexible approach to office-based working.  There are specific tax relief implications that a material shift from office-based working may result in for employees or salaried directors.  Here, Dragon Argent assess the tax relief benefits of working remotely.

Criteria

• Tax reliefs are only available for those who must work from home. Legitimate cases of ‘must’ include:

•  The company you work for don’t have an office at all, or one that is not close enough to reasonably be expected to commute to daily

• The office being entirely closed due to Covid-19

• The office being closed to different employees on different days to restrict numbers. In this instance, it is deemed that the employee must work from home on any day that they are barred from entering the office. 

Although not compulsory, it is advisable to have something in writing between employee and employer regarding which days working from home is compulsory.

Examples of expenditure that cannot be ordinarily claimed as tax relief

Any home cost incurred that does not increase by virtue of working from home cannot be utilised for tax relief. This includes, but is not limited to:

• Mortgage payments or interest

• Council tax

• Water (if non-metered)

• Rent

• Pre-existent broadband

Examples of Expenditure that can be claimed as tax relief:

Home Expenses

 Any home cost that increases by virtue of working from home. This includes, but is not limited to heating, electricity bills and metered water.

 This can be claimed in one of two ways.  Full documentation and calculations can be kept, and an exact amount claimed or £6 per week can be used for tax relief against income with no documentation required.

 Office Equipment

 If the company pays for appropriate office equipment, or a mobile phone, for the purpose of its employees to work from home, this is a tax-deductible expense for the company and no taxable benefit arises.

 Travel

 If the company requires you to travel to the office on designated working from home days, this travel may be a tax-deductible expense on which a benefit does not arise.

An alternative way to get relief:

 If you are the director of your own company, it may be tax-efficient for the company to rent a room from you as a director. This office can then be used for working from home and a proportion of all household costs become deductible against rental income. These can include:

•  All mortgage costs or rent, and council tax

• All rates, including water, broadband, heating, and electricity

While this can be highly tax efficient as a cash extraction method, it must be done with care to ensure the proportions are calculated appropriately. Also, if the room is used solely for business, it may attract a chargeable gain for tax on the sale of the property.

If you would like to investigate how you could benefit from the tax relief implications for your business and employees as the result of a fundamental shift in working location, get in touch with Dragon Argent - our small business, SME and startup accountants can provide valuable insights and recommendations on the tax relief options available to you.

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