As an employee or a director working from home, you are allowed to reclaim reasonable ‘work from home’ expenses from your company.

Flat rate basis

HMRC allows you to reclaim a flat rate per month, depending on the number of hours a month you would typically work from home. Well actually, the flat rates are published for the self employed but on occasion we meet a director/employee who opts to use the flat rate rather than calculate an actual cost.

You don’t need to provide any records of the household expenses you’re claiming relief for.

  • 25 to 50 hours a month =  £10
  • 51 to 100 hours a month = £18
  • 101 and more hours a month = £26

Actual cost basis

If you believe and can prove by way of a ‘fair and reasonable’ calculation that your actual costs are higher than £4 per week, then you may claim the higher sum.  You will need supporting evidence to show that the amount you are claiming is no more than the additional household expenses you have actually incurred.

You can claim:

Actual costs, which may include;

  • Light, heat and power expenses
  • Calls made on your home telephone or a second business line if incurred for business purposes
  • Insurance, if there is business equipment insured under that policy
  • Repairs if incurred on business equipment
  • ISP/broadband costs, subject to the contract
    • NOT ALLOWED IF the contract was in place before you started working from home
  • A proportion of invoiced cleaning costs of your workspace
    • NOT ALLOWED IF you pay cash wages with no receipt  to a cleaner
  • Rent  – only where you have incurred additional rental charges wholly and exclusively for the purpose of running your business

You cannot claim:

  • Mortgage capital, interest or rent on your home as you would have incurred these anyway
  • Water rates
  • Any other expenses that do not have receipts

The rules for directors and employees who work from home differ slightly to the self employed. Directors and employees are not allowed to claim rent or mortgage interest whereas the self employed can. A director, may however be able to rent out part of their property to the business and claim tax relief on mortgage interest and rent. This almost always results in a higher claim:

For more information – Director renting office space to the Company

Calculating an actual cost claim

1. % Space: Calculate the proportion of household space you use for business – No. of rooms used for business / No. of usable rooms in the house (exc. kitchens and bathrooms) – or square footage if your rooms are of disproportionate size

2. % Time: Calculate the amount of time the space is used for business. Hours per week used for business / 168 hours (24 x 7)

3. % to Claim = % Space x % Time

4. £ to Claim = the allowable costs x % to Claim

 If in doubt – ask your accountant. Most accountants will provide a tool or spreadsheet to help you prepare your claim. Caseron clients will have a copy of our work from home calculator.

How to claim?

An employee would typically fill in an expense form and submit to the company for approval and payment. Depending on the company expense management policy either:

  • The employee is set up as a supplier on the accounting system and approved expenses  are entered as purchases invoices
  • Expenses are added to payroll as a payroll element – not subject to tax or NICs – and paid through payroll
  • If like Xero, your accounting software has an expenses module – then expenses can be managed through the expense module in the accounting software

Employee expenses should be paid promptly.

Directors have similar options whereby:

  • The director is set up as a supplier on the accounting system where expenses are entered as purchases invoices
  • If you run a directors payroll, expenses can be added to payroll as a payroll element – not subject to tax or NICs – and paid through payroll
  • If like Xero, your accounting software has an expenses module – then expenses can be managed through the expense module in the accounting software
  • Finally and most typically for a director, you or your accountant will journal the ‘Use of Home Office’ expense into your accounts monthly or annually

Directors can then be paid either by:

 

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