Working from home? Beware the tax trap!

First published on 07 July 2020 by Alastair
  • Categories:
  • Accountancy
  • HMRC
  • Tax News

The Covid-19 pandemic has resulted in enormous numbers working from home. Unsurprisingly, this has resulted in lots of claims for home office expenses.  HMRC is, again unsurprisingly, on the case…

Expenses at home

When you’re stuck in the house, you invariably spend more on things like electricity and heating (and food and drink, but that’s another story and certainly not a claimable one!).

What matters here is what the law allows you to claim.

Employers can provide their employees with a tax-free allowance of £6 a week, or £26 per month, for monthly paid employees.  If this flat-rate amount is paid, then no records need to be kept or provided by the employee.

If an employer does not provide this allowance, then relief can be claimed directly by the employee from HMRC under s336 ITEPA 2003. This claim should be made on your tax return or online via a form P87.

Claims under s316A and s336 can be made for expenses higher than £6 a week but evidence will need to be provided to support them.

We realise that all this tax jargon can be confusing, so if you’re not sure, please do get in touch with me and I’ll try to help!

Selling a house in which a room is used solely for business

Ordinarily, when an individual sells their main home, this benefits from relief from capital gains tax ('CGT') and no tax is due to HMRC. This is the case even if the property has risen quite significantly in value under the principal private residence relief rules. However, this relief can be restricted and some of the increased value of an individual's home can be taxable where a particular room in the house is designated solely for business use and is not used personally in any way (under s224(1) TCGA 1992).

What this means in practice is that if you’re making plans for your dream study/home office then you can avoid the problem if it can be shown that the room has a dual purpose. If the intention is to have a more dedicated office space in the future, it might make sense to earmark the room for business use for certain hours of the day (e.g. your typical 9am to 5pm) and have it available as a family room outside of those hours. That should then be reflected in any claims made for expenses. For example, if the room is used for 10 hours a day, a claim for expenses might be restricted to seven hours out of that 10-hour period. Moreover, any rental agreements with companies might include terms that the office is only available for business use during certain working hours.

Even something as simple as having an exercise bike or a sofa bed in the room could potentially save a home worker thousands of pounds in the future. Alternatively, making your home office room available for use as a study for the whole family should also be acceptable to HMRC.

Once more, let me state that I know all this tax jargon is confusing, so if you’re not sure, please do get in touch with me and I’ll try to help!

Julie Downie, Accounts Manager

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