Working from home during the coronavirus – what are the tax rules?

8th Jul 2020
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We’re entering a strange, rapidly changing time and with so many more people now working from home, we thought we would provide some helpful advice on the rules and VAT implications.

For many employees, this will be business (almost) as usual. They may already have a homeworking set-up and work from home one or two days a week.

In this case nothing much changes.

But for other people this will all be new and they’ll need to think about, for the first time, how they set up their home environment and make sure that they follow the rules.

We should point out here that there are two sets of rules that you need to think about – firstly, you need to make sure you are complying with your company’s expense policy.

Now, it may be that this is also changing in light of recent events so make sure you check with your manager or HR department to see if there are any new instructions.

The second set of rules are the PAYE and VAT rules on what you can and can’t claim and this is what we are dealing with here.

Setting up

The first thing you might need to do is organise some equipment.

It’s possible that your IT department may supply these but for the majority of people it may need to be sourced personally.

Assuming your company is happy for you to do so, you can purchase the things you need to carry out your work and claim back the VAT, subject to the expense being ‘reasonable’ and being purely for business use.

What does ‘reasonable’ mean? Well, there’s no clear definition of this but in our opinion, it would be something you could justify to your boss if you were asked to.

Do you need to buy a top of the range laptop or just one that will do the job?

You can buy all the things you need to do your job so the obvious things to suggest are a laptop, keyboard and monitor but you could also extend this to stationery, a desk and chair or any other item you may need to kit out your home for work.

If you are one of the rare people that doesn’t have broadband at home then you could even claim for installation but beware…

Business use only

This is the main rule for costs that you are about to incur and your company will want to claim the VAT back from.

This means that if you are using something purely for private use and your company pays for it on your behalf, they can’t claim back the VAT and you may end up having to pay tax on the value.

Some things will be for mixed-use (business and private) and it is perfectly acceptable to claim part of the cost back for the proportion that is being used for business purposes.

For example, you may decide to buy a pack of pens, half of which you use in the house and half in your new office area. In this case, claiming 50% of the cost is fine.

The important thing is that when you are incurring costs you must keep the bills and receipts to prove what you bought and whether VAT was paid or not.

What about energy bills?

This is an area that can cause confusion and is something that is going to be high on people’s list of questions currently.

When you work at home you are clearly going to be using your utilities more. After all, your new laptop uses electricity of course! You may also need to heat your home in the day when it would normally only be on at night.

Employers can pay £4 per week to cover these costs. This is tax-free, doesn’t need any documentation and does not need to be reported by you or the company.

Also, if you have a separate work area you can claim the costs of heating and lighting for this.

You can claim for things that you can show are for business use, so, for example, phone calls that you make on behalf of work should be easy to evidence.

But you can’t claim a proportion of your rent or any aspect of your home costs that are for dual-use.

Working from home voluntarily

HMRC has a rule that you can’t claim these costs back if you are working at home voluntarily.

Given that the government has put out pretty strong advice that people should avoid travel, congregating in groups and should practice ‘social distancing’ then we’d argue that working at home for the duration of the coronavirus situation is not voluntary at all.

In fact, their website says that “ebusinesses and workplaces should encourage their employees to work at home, wherever possible” and whilst this isn’t ordering people to work from home it is a pretty strong suggestion.

At the moment we haven’t seen any specific taxation advice that covers this but it is likely to be a similar situation to when people are snowed in and travel is impossible so this would suggest that the voluntary aspect will be moot.

Things are changing rapidly

Coronavirus is a fast-moving situation and things are changing on a daily basis.

At the moment, it looks like we won’t be at the peak until June and then some measures may have to stay in place for a while after that.

Consequently, we’d say that it is important that you keep an eye out for the latest advice on the government website.

Above all, STAY SAFE, look after yourself and we wish you and your family all the best.