Working From Home Tax Allowance

working from home allowance

IN THIS ARTICLE

In the UK, workers can claim a working from home tax allowance as a simplified way to cover expenses if you work for 25 hours or more a month from home.

In this guide for employed and self-employed workers, we explain the rules on claiming

What is the working from home allowance?

If you are an employee, you may be able to claim tax relief for additional household costs if you currently, or have previously, had to work at home for all or part of the week. This is commonly referred to by tax practitioners as the working from home allowance, or working from home tax relief, where these expressions are frequently used interchangeably.

Equally, working from home tax relief is also available to the self-employed, including sole traders or business owners who work partly or wholly from home, where you may be able to claim some of the cost of working from home by way of allowable business expenses.

What does the working from home allowance cover?

In broad terms, both the working from home tax allowance for employees and the working from home tax relief for the self-employed are designed to cover costs or expenses arising out of your work, although the type of things that you can claim for slightly differ.

For those in paid employment but working from home, the allowance is specifically aimed at additional household costs, such as increased energy bills. Other additional costs can include metered water bills, home contents insurance, business calls and new broadband connection. However, you cannot claim for costs that would stay the same whether you were working at home or in an office, such as your rental payments or council tax.

For those working for themselves, the relief that can be claimed by way of allowable business expenses can include a proportion of all of your utility bills (gas, water and electricity), your telecoms bills (internet and telephone), as well as rent or mortgage interest, and council tax. However, you will be required to adopt a reasonable method of apportioning these costs based on the time spent working at home and other factors.

If you use something at home for business and personal reasons combined, you can only claim expenses for the business-related costs. Further, where the expense would be incurred regardless of the business, this is unlikely to be allowed. For example, you can claim for any identifiable business calls for a mobile line used for both business and personal calls, but you cannot claim for the line rental because there is a dual purpose, where the cost would be incurred in any event. You also cannot claim for items that are wholly unrelated to your self-employment or business activity while working at home, such as a Netflix subscription.

Who can claim working from home allowance?

During 2020/21 and 2021/22, if employed workers were told by their employer to work at home because of coronavirus and, as a result, their household costs increased, they were eligible to claim the working from home allowance. As such, millions of workers were able to claim tax relief on expenses incurred by working from home during the pandemic, but the rules relating to eligibility have become far more stringent since then.

For the 2022/23 tax year, you will only be eligible to claim relief if your job requires you to travel an unreasonable distance to and from your employer’s premises on a daily basis or there are no appropriate facilities available to you to perform your job on your employer’s premises. You cannot claim tax relief if you simply choose to work from home, including if:

  • your employment contract allows you to work from home some or all of the time
  • you work from home because of coronavirus
  • your employer has an office, but you cannot go there sometimes because it is full.

Essentially, what these new rules mean is that if your employer has premises you could be using, then you will no longer be eligible for the working from home tax relief. Still, if you were forced to work from home during the pandemic, you may still be able to claim the allowance, even if you only worked from home for a short time. You can also claim this relief retrospectively up until 4 tax years later. However, you will only be able to claim tax relief if you have not already been reimbursed by your employer for the extra costs.

For the self-employed, at least in theory, anyone working for themselves who carries out some or all of their work from home can claim tax relief by way of allowable business expenses. However, there are strict rules when it comes to the use of simplified expenses. These will be explained more below, but simplified expenses can only be used by sole traders or business partnerships that have no companies as partners. They cannot be used by limited companies or business partnerships involving a limited company. Further, you can only use simplified expenses if you work for at least 25 hours a month from home.

You must also bear in mind that if you use the £1,000 trading allowance available to the self-employed in lieu of claiming business expenses, you will not additionally be able to claim working from home tax relief, regardless of the basis upon which this is calculated. If your allowable expenses, either actual or simplified, are less than £1,000, it will be more beneficial to claim the £1,000 tax-free trading allowance, but you cannot claim both.

How is working from home allowance calculated?

The basis upon which the cost of working from home is calculated will depend on whether you are claiming the employee allowance or tax relief as someone self-employed. However, in either case, you can adopt a simplified approach to avoid complex calculations and needing to evidence the necessary documentation to prove any work-related costs.

As an employee claiming the working from home allowance, you can either claim the exact amount of extra costs that you have incurred above the weekly amount or at a flat rate of £6 per week. If claiming the exact amount incurred, you would need evidence of these additional costs by way of receipts, bills or contracts. If claiming the weekly flat rate, you will not need evidence of your extra costs. You will simply get tax relief on £6 per week based on the rate at which you pay tax under the working from home allowance rules.

As someone working from home on a self-employed basis, there are again two ways of calculating the relief due. You can either claim a proportion of your costs for certain household bills relating to your business or apply a flat rate based on the hours you work from home each month under the simplified expenses rules. Simplified expenses are a way of calculating some of your business expenses using flat rates, rather than working out your actual business costs, including the cost of working from home. You do not have to use simplified expenses, although it may suit your business to do so, not least as this means you would not have to work out the appropriate apportionment of personal and business use.

By calculating actual costs, you would need to find a reasonable method of dividing your bills, such as by the number of rooms you use for business and the amount of time spent working from home. For example, if you have 4 rooms, one of which you use only as an office and your electricity bill for the year is £1,200, you could potentially claim up to £300 as allowable expenses (£1,200 divided by 4). This is assuming all the rooms in your home use equal amounts of electricity. However, if you worked only one day a week from home, this would equate to an allowable expenses claim of just £42.86 (£300 divided by 7).

How much can you claim for working from home?

When calculating how much you can claim for working from home, this will not only depend on if you are claiming the allowance as an employee or tax relief as someone self-employed, but also the basis upon which you are making your claim.

If claiming the working from home allowance as an employee based on a rate of £6 per week, tax relief will vary depending on your income tax band, where you will not get back the full cost of the extra household expenses, only tax relief on the total. As such, if you pay the 20% basic rate of tax, you would be entitled to receive £1.20 per week in tax relief (20% of £6). This equates to £62.40 per year. As a higher rate taxpayer, you would receive 40% tax relief, equating to £2.40 per week or £124.80 per year.

If you wanted to claim for more than this, you would need clear evidence of what you have spent, as well as being able to show the proportion of your bills used for work purposes, factoring in the size of the room you use for work and the time spent working in it.

For those of you seeking working from home tax relief on allowable expenses as someone self-employed, and opting to use simplified expenses, the applicable flat rates are:

  • 25 to 50 hours of business use per month: £10 flat rate per month
  • 51 to 100 hours of business use per month: £18 flat rate per month
  • 101 and more hours of business use per month: £26 flat rate per month

For example, if you worked 35 hours from home for 10 months, but worked 60 hours during 2 months, this would equate to 10 months x £10 (£100) and 2 months x £18 (£36). The total you could claim for the tax year would therefore be £136. There is a useful simplified expenses checker at GOV.UK that you can use to compare what you can claim using simplified expenses against what you can claim by working out the actual costs.

Importantly, the flat rates here do not include telephone or internet expenses, where you can also claim the business proportion of these bills based on the actual costs.

How to claim working from home allowance

As an employee, you can claim the working from home allowance if your employer has not already paid your expenses and you have, or have had, additional household costs as a result of working from home. If you worked from home during lockdown, or where government guidelines or your employer required you to work from home or self-isolate, you can backdate your claim. HMRC will accept backdated claims for up to 4 years.

However, it is important to bear in mind that the rules changed on 6 April 2022, where it is now far more difficult to claim the working from home allowance for the 2022/23 tax year. As such, you must ensure you meet HMRC’s rules for claiming, as you may be prosecuted if you deliberately give incorrect or misleading information, or make a claim without basis.

If you are currently employed, one of the easiest ways to check if you are eligible to claim working from home tax relief is by using the online tool at GOV.UK. You should use the link at ‘Claim tax relief for your job expenses’. You will be guided through a series of questions to assess your circumstances, both now and in recent years.

If you are eligible to claim, either for the current and/or previous tax years, you can apply directly using HMRC’s designated online portal free of charge. You will need a Government Gateway ID, your National Insurance number, and either a recent payslip, P60 or valid UK passport to be able to apply. If your working from home allowance application is approved, your tax code will be adjusted, where you will receive the tax relief directly through your salary for the current tax year, together with a lump sum for any backdated claims.

If you are self-employed, your claim for allowable expenses, including working from home tax relief, either actual or simplified, must be made via your self-assessment tax return. This should be included along with any other expenses incurred in running your business and will be deducted from your annual turnover, in this way reducing your taxable profit.

Working from home FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert professional advice should be sought.

 

Author

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.

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