Working from home – how does this change your tax?

Home working in Sheffield tax implications

Over recent years there has been an increasing trend of home-working and, during the coronavirus pandemic, huge numbers of people have also been forced to work from home either because of lock-downs or because their employer has shifted to complete or partial home-working. Working from home has many benefits. But you might not have thought about the costs and probably have not considered that working from home might have tax implications for you. Like many things to do with tax, the rules are not always easy to understand so professional advice is always recommended. Speaking to a local Sheffield accountant can put you on track to a lower tax bill.

What is working from home?

For tax purposes the most important factor is the reason you are working from home. To qualify for tax purposes, you have to work from home because your employer requires it. Many people choose to work from home, or work from home for some of the time, because of their personal preferences. Many people recognise the benefits of working from home and have negotiated home working with their employer. If they had an office or other workplace, they could go to work it would leave them ineligible for any tax relief since working from home would be voluntary.

However, if you have no choice but to work from home you would be eligible for tax relief. The reason you do not have a choice is irrelevant. Even if you were attracted to the job because it was home-working. If you do not have the option to go to work in your employers’ office, workplace or other facility for all your working hours then you are home-worker.

This applies to people who have to work from home during the coronavirus pandemic. Regardless if that’s because of a local or national lockdown or because of your employers’ decisions. If your employer has closed your workplace or is only partially open to help social distancing. It’s likely you will be able to claim some tax relief even though you would normally go to a place of work. Again, it’s worth talking to your Sheffield accountant to assess your circumstances to ensure you claim all you can.

Why can you claim?

Many people, in Sheffield and elsewhere, have seen lots of benefits from home working. Saving time & money on commuting, to enjoying the flexibility of being at home and having more freedom to manage their time. Even simply having better coffee in their kitchen!

When people think about negatives, they think of the things they miss from the office like the social contacts. People rarely consider that the costs their employer used to cover. Things like heating & lighting an office, or providing the equipment and furniture they used at work. These are now costs they have to cover from their own pocket. It’s these costs that the tax relief is intended to reduce.

It’s general principle that, as an employee, you should be paid to work and not have to pay to work. This is reflected in a range of tax reliefs that HMRC have made available for people in many jobs. E.g. jobs that require a uniform will have a flat-rate allowance to offset the costs of washing and cleaning. Nurses have a tax allowance that covers shoes. Those jobs that require people to have specific equipment will also allow them to claim against the cost. (e.g. when a hairdresser pays for scissors). The same principle applies when you have to work from home. The tax system allows you to claim against costs you incur to do your work.

At the bottom of the scale is a flat rate allowance you can claim without evidence. If you have incurred any specific additional costs, you can claim even more tax relief. That’s why it’s worth working with an accountant.

What can’t you claim tax relief on?

Essentially, any expenses you incur because you are working from home are eligible for tax relief. But it can be complicated, which is why it is important to get professional advice from a Sheffield accountant.

The complexity comes from being able to justify that a cost was entirely down to work. If the cost was something that you would have paid anyway, whether you were at work or not. Then you cannot claim. But what is the dividing line?

Some things are clearly not eligible. You cannot claim tax relief on rent or a mortgage. You would have had to pay those whether you were at home or at work. The same would apply to other household bills that remain unchanged regardless of whether you are home or not, so you cannot claim if you have an unmetered water supply or for council tax. Similarly, you can’t claim for any items that you would have had to buy anyway, you would have had to buy yourself lunch wherever you were working so you can’t claim anything just because you happened to make or eat it at home instead of at an office desk.

What can you claim tax relief on when working from home?

Other additional costs can potentially be claimed for tax relief. E.g. If you have had to buy a computer to work from home, you should be able to claim against that. If you have to pay for phone calls that would normally have been made from a work phone these would also be eligible. Many of these will have complexity, which an accountant can help. If you bought a new computer for work, but are also using it privately, what portion of that cost is eligible for tax relief? How do you handle an upgraded phone contract that covers your work calls but also gives you free calls in the evening?

It’s also important to think about the less obvious items that might be eligible. Again, this is where a local Sheffield accountant can help you think of those costs that you might otherwise not consider.

Many people have had to adapt their homes to create suitable workspaces. While this might be home improvement, would you have turned the spare room into an office if you weren’t working from home? Even if your working arrangements are more makeshift, there may well be expenses that can make a justifiable claim. If you needed to buy a chair so you could spend eight hours at a desk, it could be considered a work expense for tax relief.

Even items that might seem a little flippant could be suitable. You might have been buying books online to make an impressive Zoom background but what if some of those books are also reference items that you would normally have at your office? Or the lighting that you bought because it made for more flattering video calls, but actually helps your communication now you are on a webcam for several hours a day?

Do you do need evidence to show you’re working from home?

The amount of evidence you need depends exactly on what you are claiming for. Like the fixed allowances for certain workers to cover expenses there is a small amount (£6 per week in 2020-21) you can claim without any evidence through your self-assessment or by submitting a form to HMRC. If you want to claim anything beyond this sum, though, you will need to provide evidence. The type of evidence will depend on the type of claim that is being made, but might consist of receipts, contracts or bills that prove you have incurred an expense as a result of working from home.

How an accountant can help with your claim

Justifying a claim is where a local Sheffield accountant can help. A professional has the advantage of not just knowing the rules, and what can and can’t form part of a claim, but also has the practical experience of knowing what claims have been and have not been allowed in the past. They will be able to guide you, even help you identify claims you might not have considered, to maximise your claim and gather all the evidence you need to justify it.

According to the Office of National Statistics nearly a half of all people in employment have done some of their work from home, and most of those did so because of the coronavirus pandemic. Businesses have also seen benefits of home working, since they are not just saving money on office costs, but many also recognise employees are more productive. The consequence is that home-working looks like it might be here to stay for many and with it, the additional costs that comes with it. A Sheffield account can help you make sure you claim everything you are entitled to.

Find our more

For more information on tax related to working from home, see the UK Government website or get in touch with Millhouses Accountancy. Visit our contact page or call us on:

  • Sheffield 0114 345 0960
  • Nottingham 0115 882 0356
  • London 0203 146 4808
Jason Scholey

Jason Scholey