What is allowable and not when working from home is a complicated topic. However, it is all too common to get it wrong, especially since the Covid pandemic and increase in working from home.
Who can claim and who can’t
If employee’s and/or a company director work from home, you can offset expenses against tax if:
- Your job requires you to live far from your office
- Your employer doesn’t have an office
You can’t if:
- Your employment contract lets you work from home, some or all of the time
- Your employer has an office, but sometimes it’s full
If you qualify you have the choice of either claiming tax relief on the £6 per week HMRC approved allowance or calculating expenses incurred and apportioning them appropriately.
Expenses used for dual purpose (both for business and private) can only be claimed if it is possible to identify a specific part used for business use. If it is impossible to measure the cost incurred for business use, nothing can be claimed for this.
Smart business clothing for example can’t be split between personal and private as it is impossible to separate the business use from the private use of clothing. Whilst smart office clothes serve a business purpose, their private purpose (clothes are seen to be used for warmth and decency) is primary, ever-present, constant and simultaneous to the business purpose. It is not possible to separate the two.
On the other hand, costs of computer repairs carried out on personal equipment used for eight hours a day by a director or employee to build websites for clients, and two hours in the evening to watch movies in private time, can be time-apportioned and the business part deducted for tax purposes.
Common costs that can be apportioned
- Mortgage interest
- Council tax
- Light and heat
- Water rates (only if metered)
There are various ways to apportion expenses as long as they are justified and evidenced. The most common way is to use the number of rooms and floor space to apportion costs, along with a calculation of how often the home is used as a workplace.
Remember expenses used wholly, exclusively and for the purpose of the business can be claimed in full. For example, a desk used only for business use.
Repairs, renovation and decoration
Renovation and building work on your personal residence is usually not allowed by HMRC.
If you’re a director, then you cannot recover the VAT on expenses such as repair or maintenance connected with your domestic accommodation.
However, if the accommodation is used partly for business purposes (for example, if you use a room for meetings or as your office), then you may be able to reclaim as input tax part of the VAT charged. HMRC guidance states where a domestic room or rooms are put to business use HMRC may agree to an apportionment using an objective test to the extent to which the room is put to business use.
In summary you may be able to claim the private element for work completed at your residence if you can evidence clearly the business use of the room you are renovating or decorating.
This is a complicated area, therefore if you are unsure or would like help in deciding what is eligible to claim or not as the case may be, please get in touch with one of the team at Spark.