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Coronavirus: tax implications of working from home

16 Mar 2020
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For many, a period of enforced working from home is now inevitable as we fight the coronavirus (Covid-19).

It won’t be everyone’s first consideration but there are tax implications in doing so.

Here’s what you need to know.

Employees

For a start, most employees should be able to claim tax relief for some of the bills they have to pay because they must work at home on a regular basis at the request of their employer.

These include things like a portion of lighting and heating costs, business-related telephone calls and so on.

However, it is important to note that an employee cannot claim any of this tax relief if they choose to work from home rather than being asked to do so by their employer.

Employers can currently pay employees up to £4 a week, rising to £6 a week from 6 April 2020 to cover additional costs if an employee must work from home and pleasingly, the employee does not have to keep any records to prove any of these costs.

The self-employed

The self-employed will have various running costs for their business, some of which can be deducted to work out their taxable profit.

Two options are available to do this.

Firstly, the “simplified” option for the self-employed, which means they can calculate their allowable expenses using a flat rate based on the hours worked from home each month.

This will be attractive for many because it means self-employed individuals will not have to work out the split between personal and business use. For example, how much lighting was needed for personal use as opposed to business use and so on. Telephone calls are the only exception to this simplicity – they will still need to be broken down, so the actual costs are accounted for.

This “simplified” option is only available to those working more than 25 hours a month from home and results in;

  • a flat rate of £10 a month for between 25-50 hours worked
  • a flat rate of £18 a month for between 51-100 hours worked
  • a flat rate of £26 a month for 101 hours or more

The downside of the flat rate scheme is the individual may not get as much tax relief as they would pursuing the more labour intensive second option available, that of calculating the actual running costs.

In calculating the actual running costs, HMRC states the self-employed must do this on a “fair and reasonable basis”.

HMRC suggest a reasonable way of doing this is to divide the costs by the number of rooms used or the amount of time spent working from home.

For example, a self-employed individual has 2 rooms in their home, one of which is used as an office. Their gas and electricity bill is £200. They can claim £100 as an allowable expense because this is £200 divided by the number of rooms. If they work 5 days a week from home, they could claim £71.42 (£200 divided by 7 = £14.29 x 5= £71.45).

Following this formula, the self-employed can similarly claim for the interest element of their mortgage payments (not the capital repayment), council tax, rent (if renting rather than owning their own home), utilities, telephone and broadband and even a percentage of any property repairs.

Getting advice

For some this will be a straightforward calculation but for others it can quickly become complicated. AAT therefore recommends anyone who is uncertain about what to do get in touch with their nearest AAT licensed accountant by utilising its “Find an AAT licensed accountant” service.

Get the latest on the Covid-19 situation:

Phil Hall is AAT's Head of Public Affairs and Public Policy.

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