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Working from home: Get the details right

The number of employees working from home due to necessity, to save the employer money, or for reasons of work-life balance, is steadily increasing. Chris Williams explores what this means for accountants.

4th May 2021
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Working from home
istock_WFH_Drazen_

Set aside the jibes about “shirking from home” because the indications are that employees working from home (WFH) as a general practice is here to stay and the benefits outweigh the disadvantages for employers and employees alike. Here we pick out the main practical positives and pitfalls.

WFH in a time of Covid-19

There are no specifically legislated Covid-19-related dispensations or restrictions on tax reliefs for WFH, so what follows applies equally to everyone who works from home regardless of whether they do so to suit a short-term situation such as a pandemic, to accommodate personal circumstances, or for the convenience of employer and employee. HMRC’s line is that WFH allowances are only available to those who “have to work from home”, but there is a lot to consider when deciding if the employee has to work from home.

Covid-19 and the need to work at home

Covid-19 has focused a lot of attention on the circumstances in which there is a need to work from home. Strictly speaking, a lot of home working during the pandemic time may not have been “necessary” in the terms of the s336 test because the need was one imposed externally, but on this point the Government and HMRC have adopted a pragmatic approach. It will be interesting to see whether the changes brought about by the pandemic will lead to the evolution in taxation of home-working expenses, and indeed the whole “wholly, exclusively, and necessarily” rule that has long been regarded as necessary in the modern world of work.

It would be too strict to rule that WFH could only apply to work that needed to be done at home, so practical need must be the guide, which can include absence of space at the employer’s premises as well as a contractual obligation: if the employee’s contract designates their home as the place of work, it follows that that is where they have to work.

Switching between the two is feasible but can be difficult to keep track of unless there is a regular split between home and office work. Therefore as a matter of practice, contracts of employment should always make clear the need to work from home.

Allowable household expenses

Home-related expenses that are claimable are restricted to:

  • domestic power, principally gas and electricity;
  • water services; and
  • phone call charges.

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Replies (9)

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By Hugo Fair
04th May 2021 14:36

Although frankly the sums involved are too small to be worth worrying about (£1.20 pw wouldn't even get you a small coffee round here), the problem with flat-rate schemes is inherent in their simplicity:
* Why should the occupiers of my semi-detached get 3 x the amount of WFH allowance than my next-door neighbour, just because one of my sons and his girlfriend decided to 'bubble' here a year ago?
* Why was I entitled to it last year (when only working a day/week), but potentially not this year (if I decide that I've retired)?
* Will I be entitled to it this year if I work for a month then become unemployed (without bothering to sign-on) for say 3 months, before starting to WFH again for a new part-time job?

Oh and on a separate topic ... what happened to any reference in the article to potential impact on PPRR if going the 'actual expenses' route?

Thanks (2)
Replying to Hugo Fair:
By SteveHa
04th May 2021 15:00

Hugo Fair wrote:

Oh and on a separate topic ... what happened to any reference in the article to potential impact on PPRR if going the 'actual expenses' route?

Just on your final point, it's probably unlikely that those working from home as a result of restrictions during the pandemic, and who continue to work from home following the culture shift will have a dedicated room for work, and so will not fall foul of TCGA when it comes to PRR, even if going the 'actual expenses' (which are, for all intents and purposes, still a "best guess" type thing.

Thanks (2)
Replying to SteveHa:
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By Hugo Fair
04th May 2021 16:07

Correct of course ... and my fault for trying out a new skill (brevity), which as I always feared can lead to unintended inferences or at least lack of clarity.
It was really just meant as a hint to any readers of the article who are considering WFH as the full-time future option ... and may therefore (as per several threads on this site) be contemplating full-blown construction/conversion of an 'office' (in some cases even with practice staff moving in)!
I still find it hard to see how 'dedicated' might be interpreted unequivocally, but I thought it a point worth raising (if only to get the question out there - so thanks).

Thanks (2)
Replying to Hugo Fair:
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By Mike Aldridge
05th May 2021 12:39

Whilst everything above is correct in normal times, HMRC rules for 2020-21 and the current tax year are more generous in response to the Coronavirus pandemic. Go to https://www.gov.uk/tax-relief-for-employees/working-at-home for the details. I've been advised by a tax consultant that this applies during the pandemic even if working from home for just some of the tax year.

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By Ian McTernan CTA
05th May 2021 12:29

Stick to the fixed allowance unless they convert some portion of their property or there is some other compelling argument as this will be a lot easier to deal with.

The bigger issue is the potential CGT issues further down the road with dedicated home offices.

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Replying to Ian McTernan CTA:
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By GTUA
05th May 2021 12:53

"The bigger issue is the potential CGT issues further down the road with dedicated home offices."

Relatively easy to make this go away by having written license agreements which stipulate a rent equivalent to expenses for non-exclusive use of the room / pod / shed etc.

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By Husbandofstinky
05th May 2021 13:13

Really not going to get too excited about this one. Although every little helps, this allowance in the real world is just too negligable.

Still a good article. Thank you.

Thanks (1)
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By AndrewV12
06th May 2021 08:43

£6 a week it is, better than nothing.

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Replying to AndrewV12:
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By Hugo Fair
06th May 2021 10:54

But it's not (in the sense that the typical taxpayer understands it) is it?

IF you are lucky enough to have a boss who pays you the £6 pw in addition to your normal/furloughed/whatever salary ... then (because it's tax-free) you do indeed end up with an extra £6 pw.

BUT if, more commonly, your boss doesn't do this (so you are left claiming the WFH allowance via HMRC) ... then you'll only be better off by the amount of tax that this has saved you (£1.20 pw for a basic rate taxpayer).

So, better than nothing ... but hardly worth the effort?

Thanks (1)