Working from home? Did you know there’s tax relief to help?

One of the many lasting impacts of the Covid-19 pandemic was the increase in the numbers of people working from home. Recent government data indicates that 22% of the UK workforce typically work at least one day a week from home, and 13% now work exclusively from home.

Working from home has both pros and cons. But did you know that if you do work from home, you may be eligible for tax relief? 

Tax relief can enable you to save money on some of your domestic bills. 

In this article we take a look at the tax relief available to you if you work from home, whether you are employed or self-employed. For each employment category we will look at how to find out if you are eligible for tax relief, and the two types of tax relief available.

Tax relief if you are employed

Are you eligible for tax relief?

If you are employed and work from home, you need to fulfil certain criteria to claim tax relief. These are:

• your employer does not have an office;
• your company’s trading or registered office address is your home address;
• your job requires you to live far away from your office.

You cannot claim tax relief if you choose to work from home. For example if your employment contract lets you work from home some or all of the time, or your employer has an office, but you cannot go there sometimes because it’s full.

To find out more about whether you are eligible to claim tax relief, use the Gov UK checker here.

How much you can claim

You can claim tax relief for expenditure related to your work, such as business phone calls and gas and electricity for your work area. This tax relief can be claimed either on a flat rate or analysing costs basis:

• Flat rate

You claim a flat rate of £6 a week and do not need to keep evidence of your costs. 

• Analysing costs

You work out the exact amount of extra costs you’ve incurred over and above the £6 weekly amount, and claim for these. You will need to gather evidence such as receipts, bills or supplier contracts. 

In both cases, your tax relief will be based on the rate at which you pay tax. So for example if you claim flat rate tax relief of £6 a week, and pay the 20% basic rate of tax, you would get £1.20 per week in tax relief. This tax relief will usually be given to you through a change to your tax code.

Tax relief if you are self-employed

If you are self-employed you can claim a proportion of your fixed and variable household expenses. For example:

• Mortgage interest or rent
• Council Tax
• Buildings & Contents Insurance
• Energy and water bills
• Water
• Telephone
• Broadband
• Cleaning costs
• Property repairs, either just for your work area or that are necessary for the home as a whole.

You can find out more about these expenses on the Gov UK website

• Flat rate

For self-employed people there are two flat rate methods, depending on whether you are a sole trader or a company director.

• Sole trader – the flat rate is based on the average number of hours a month you spend running your business at home, as follows:
  • 25-50 hours: £10 per month
  • 51-100 hours: £18 per month
  • 101 hours or more: £26 per month

If necessary, you can vary the amount of hours – and therefore the amount of the flat rate – from month to month.

• Company director – as for those in employment, you can choose to claim a flat rate of £6 per week for business use of your home if you don’t want to keep track of your actual running costs.

• Analysing costs

Self-employed people are able to apportion the running costs of your home on a “fair and reasonable” basis between your personal and business use. You would need to work out the number of rooms in your house that are used for business purposes, and the proportion of time they are used for business purposes as compared to their total use.

You can check the difference between flat rate and analysing costs on the Gov UK website.

We hope that the information in this article helps you to save money by claiming tax relief on your home working expenses if you are eligible to do so.

Do visit us here again soon for more financial and lifestyle tips from Loans 2 Go.