Tax Issues of Home Working

More than 3 million people work regularly from home - most being ‘teleworkers’, those relying on computers, telephone and broadband internet connections. What are the tax issues arising for the employee and the self employed?

Equipment provided by employer

If an employer provides equipment (furniture or computers) or supplies services (a telephone line or internet access), this would normally be a benefit in kind. These are exempt, however, where the only purpose is to enable the employee to work at home and private use is insignificant. Telephone and internet access must be a vital and central part of the employee’s duties and the employer must be able to minimise private use.

Expense payments to employee

There is no tax charge where an employer reimburses an employee for any additional household costs incurred whilst working at home, for example for extra light and heat or insurance. Up to £2 a week may be paid without the need to keep records but more than this can be paid if there is evidence to justify the amount.

The homeworker must do some or all of their work at home with the agreement of the employer under a formal arrangement. No relief is given where an employee takes work home in the evenings.

Expense deductions

If an employee incurs expenses, tax relief will not be given unless the duties of the employment require the employee to work at home. Most employees who work at home are doing so by choice and they will not receive tax relief on these expenses.

If a homeworker travels to the employer’s office, the cost will not be allowed unless trips are irregular or self contained - for example for a meeting. Business trips to other locations will normally be allowed.

Self employed

An expense is not usually allowable if it is part private, but a claim for “use of home as office” based on a reasonable apportionment of household expenses will normally be given to self employed taxpayers. This can be based on number of rooms or surface area and include costs such as rent, light and heat, insurance, council tax, water rates etc. HMRC expect to see that an identifiable part of the house is set aside for business use.

Two potential pitfalls

In some cases, business use of the main home may cause a capital gain to arise on sale and there may also be cases where business rates are payable. Please contact us for more information if you think you might be affected by these issues.