Tax relief for working at home
In recent years, it has become increasingly possible and often desirable to work from home. So we are often asked the question, what expenses can I offset against tax for the use of my home? The answer depends on whether you are self-employed or trade through a limited company.
The amount of tax relief that can be claimed for the use of a home will depend on the degree to which the home is used for business purposes and the costs incurred. If the home office is used for little more than writing up the books on a weekly basis, a nominal claim of £3 a week is likely to be the most that can be claimed. But where the real work of the business is carried out from home, there is scope for being more scientific and claiming a good deal more. A proportion of heat, light and power bills may be claimed, based on the proportion of the house used for business, and the proportion of the time it is used. Similarly, telephone and broadband costs may be apportioned between private and business. Provided that the apportionment is realistic and reasonable, HMRC will generally accept it. HMRC will also accept a proportion of household maintenance costs, such as cleaning, outside redecoration and roof repairs. However, no tax relief is given for property improvements. If a part of the house is used solely for business, it is also possible to claim a proportion of mortgage interest, insurance and council tax. However, the quid pro quo is that the same proportion of a future capital gain on the property will be assessed to capital gains tax.
The rules are far more restrictive where the business is run through a company. In most cases, directors will not claim any tax relief for home expenses, the rare exception being where it can be shown that the nature of the job requires the work to be done at home. There are two possible ways around this. The first is for the company and the director to enter into a ‘home working arrangement.’ This enables a nominal £3 a week to be paid tax-free to the director, or more if it can be shown that additional expenses are incurred by working at home. This only applies where home-working is part of the normal working week, rather than additional or occasional work carried out at evenings and weekends. A more flexible and tax-efficient alternative is for the company to pay a rent under a license agreement for the use of the home. The rent has to be declared as taxable income, but against that can be deducted the expenses for heat, light and maintenance as described above. By pitching the rent at an appropriate figure, the company can obtain tax relief for the household expenses without leaving the director with a tax bill. Again, care needs to be taken that this does not jeopardise the capital gains tax exemption on the home, but this approach generally maximises the tax relief that can be given. In tax, every case is different, so for advice on how the rules might apply to you, please contact your usual business adviser at Moore and Smalley.