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Tax tips for home workers

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14th Jun 2010
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Tax lawyer Shimon Shaw outlines the main tax points employers need to cover when allowing staff to work from home.

One of the more civilised aspects of the internet age is that it has enabled many people to work from home. Remote working is seen as a viable, environmentally-friendly and, often, cost efficient way of conducting business. It enables businesses to increase their geographical reach by having employees located far and wide and can also benefit workers with more complex family situations, such as those caring for a dependant.

Home working arrangements can, however, lead to confusion for both employers and employees about the proper taxation. There are also non-tax considerations such as employment rights and health and safety law that employers will need to consider.

Different considerations will apply to employees who work from home and the self employed. This article focuses on the former.

Deductibility of expenses
A key issue is whether the costs of an employee working from home will be deductable for the employee. Most commonly, this will relate to expenses incurred in the home. The basic rule is found in s336 ITEPA 2003.

The basic position is that in order for an expense to be deductible, it must have been incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

HMRC accepts that those conditions are met where:

  • The duties that the employee performs at home are substantive duties of the employment (i.e. the employee has to carry them out and they represent all or part of the central duties of the employment).
     
  • Further, those duties must not be able to be performed without the use of appropriate facilities and no such appropriate facilities are available to the employee on the employer’s premises (or the nature of the job requires the employee to live so far from the employer’s premises that it is unreasonable to expect him or her to travel to those premises on a daily basis).
     
  • Finally, at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

For most people electing to work from home occasionally, no deduction will be available.

Employer meeting the costs of home working
Certain payments made by employers to defray the costs of home working will be exempt from income tax (s316A ITEPA 2003) and NICs (paragraph 9 of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001). There are relatively strict limits imposed on this. In principle, any payments over £3 per week will need to be reasonable and supported by evidence and may be scrutinised by HMRC. This exemption is less restrictive than the rules under section 336 but will still generally not apply to ad hoc home workers.

If an employee is provided with supplies or services for the sole purpose of their employment, they will not suffer tax, provided that any use of the benefit for private purposes is viewed by HMRC as "not significant". This would cover furniture and equipment (such as desks, workbenches, tools, computers, telephones etc), typists and messengers, stationery and normal office or workshop materials and supplies. It can also cover home telephone lines and internet access although this is quite restricted.

Business rates
Depending on the degree of use for business purposes, all or part of the house could be subject to business rates, rather than council tax.

Main residence relief
An often overlooked consequence is that setting aside part of a home for remote working may restrict the availability of main residence relief for CGT (see s 222(10) TCGA 1992).

Shimon Shaw is a tax lawyer at Matthew Arnold & Baldwin LLP. He can be contacted on 01923 215 047 or [email protected]
 

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By brian.barrett
08th Aug 2013 20:46

Don't Claim

My personal view is that unless you do have substantial extra costs because you work at home, I would NOT claim expenses for the use of the building.  Telephone costs I would claim.

I would not claim building based costs because you are defining your use of the house - you are essentially saying, say, 20% of the house (if that is the amount you claim) is used for business.  Having stated this you cannot later claim that use for work is insignificant.

As discussed in the main article, this self-defined business use may have CGT and business rates implications - all for trying to get a few tax pounds back.

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