Working from home tax relief

Last updated: January 2024 | 3 min read

Transitioning to working from home? Our 'Working from Home Tax Relief' guide is a pivotal part of your financial toolkit, seamlessly integrating with broader subjects like should I pay off my mortgage early. It also connects with related matters such as council tax on a second house and the duration of a remortgage process. This guide not only explains the tax relief process but also places it within the context of your overall financial wellbeing.

Introduction to working from home tax relief

What is working from home tax relief?

Working from home tax relief is a financial benefit offered by HM Revenue and Customs (HMRC) in the UK. This relief allows individuals who work from home to claim a portion of their household costs against their taxable income.

These costs may include heating, electricity, and internet charges, directly linked to their work. The relief aims to reduce the tax burden for those incurring additional home office expenses.

Recent changes in tax relief eligibility

Tax relief eligibility for working from home has evolved, particularly in response to the COVID-19 pandemic. Government restrictions led to an unprecedented number of professionals shifting to remote work. Consequently, HMRC updated the eligibility criteria to accommodate this new wave of home workers. These changes ensure that more individuals can claim tax relief for home expenses related to their employment.

Eligibility criteria for claiming tax relief

Who can claim working from home tax relief?

Tax relief for working from home is not a universal entitlement. It's specific to those whose job requires working from home. This criteria extends to both employed and self-employed individuals. However, the reasons for working from home play a pivotal role. If your employer's premises offer appropriate facilities but you choose to work from home, you are no longer eligible. Conversely, if your employment contract lets you work from home, or current circumstances necessitate it, you become eligible to claim.

Conditions for eligibility

Employment status and contract requirements

Your employment status significantly influences eligibility for home tax relief. For employees, the key is having an employment contract that either requires or allows working from home.

In contrast, self-employed individuals face different criteria, revolving around the necessity of home working for their business operations. It's not just about convenience but a necessity for your role.

Scope of allowable expenses

Eligible expenses under home tax relief extend beyond just a broadband connection. They include additional costs directly linked to your work. These expenses can range from increased heating and electricity bills to business phone calls.

However, costs that remain constant whether you work from home or not, such as mortgage payments or rent, are not claimable. The government strictly outlines eligible expenses, ensuring they are exclusively work-related.

Understanding claimable expenses

Types of expenses covered under home tax relief

Home office setup costs

Setting up a home office requires specific equipment. Tax relief for working from home covers costs like furniture, computers, and software necessary for your job. The rule is straightforward: if you use it exclusively for work, it's likely eligible.

Remember, the expense must be solely for work purposes. A chair or desk used for both work and personal activities doesn't qualify.

Utility bills and additional household costs

Utility bills increase when working from home. You're eligible to claim a portion of these expenses. This includes increased costs in heating, electricity, and internet usage directly related to your work.

However, the calculation isn't just the total bill amount; only the additional costs incurred due to working from home are claimable.

Non-eligible expenses for tax relief

Some expenses don't qualify for home tax relief. Personal expenses, like mortgage payments or rent, aren't covered. Likewise, internet and phone packages exceeding what's necessary for work are ineligible. It's crucial to differentiate between purely personal expenses and those partially used for work.

Calculating your tax relief amount

How much tax relief can you claim?

Differences for basic and higher rate taxpayers

Tax relief, a financial respite, differs for basic and higher rate taxpayers in the UK. Basic rate taxpayers, taxed at 20%, receive relief equivalent to this rate on work-related expenses.

Conversely, higher rate taxpayers, facing a 40% tax rate, obtain a proportionately larger relief. This distinction ensures fairness, aligning the relief with the individual's tax burden.

Calculating expenses for self-employed individuals

Self-employed professionals face distinct tax relief calculations for their home office expenses. Unlike employees, the self-employed can claim the exact amount of extra costs incurred for business use.

This process necessitates meticulous record-keeping to provide evidence of these expenses. The relief amount directly corresponds to the demonstrated additional costs.

Understanding flat rate deductions

Flat rate deductions offer a simplified method for employees to claim tax relief for working from home expenses. Under this system, a standard amount, determined by the government, is deductible without the need to provide detailed evidence. This approach eases the administrative burden, allowing employees to claim relief efficiently for common home office expenses.

Applying for working from home tax relief

Step-by-step guide to claiming tax relief

Using the online portal

To claim working from home tax relief, the first step is to access the online portal. For this, you need a Government Gateway ID. If you don't have one, you can easily create it on the HMRC website. Once logged in, navigate to the self-assessment section.

Here, you'll find a dedicated area for work from home claims. The system is user-friendly, providing clear instructions at each stage. You’ll enter details about your employment and the extra costs you've incurred by working from home.

Documentation and evidence requirements

When applying, it’s crucial to provide evidence of your work-related expenses. Keep recent payslips and detailed records of all extra costs, such as business phone calls or increased gas and electricity usage. These documents are pivotal in substantiating your claim. They should clearly demonstrate how these expenses are directly related to your work activities at home.

Can backdated claims be made?

Yes, backdated claims for working from home tax relief are possible. The UK tax system permits claims for the current tax year and up to four previous tax years. This opportunity is invaluable for those who have been working from home in the past but haven’t yet claimed tax relief for those periods.

Criteria for successful backdated claims

To ensure your backdated claim is successful, adhere to the same criteria as for current-year claims. You must demonstrate that your job required you to work from home, leading to additional expenses. This evidence should be as detailed as possible, ideally including dated records of increased utility bills or purchase receipts for necessary home office equipment.

Receiving your tax relief

Methods of receiving working from home tax relief

Receiving your home tax rebate usually involves a few distinct steps. Once you make a claim, the HM Revenue and Customs (HMRC) reviews it. Successful claims result in adjustments to your tax code. This adjustment reflects the reduced amount of income tax you need to pay, effectively granting you the tax relief.

You might notice these adjustments in your recent payslip. They typically appear as changes in the tax-free amount you're entitled to. This increase in your tax-free allowance reduces the overall tax deducted from your salary. Thus, your take-home pay increases slightly, reflecting the value of your tax relief.

For self-employed individuals, the process differs. The tax relief you're entitled to will be part of your self-assessment. It reduces your total taxable income. As a result, the tax you owe for the current tax year lessens. It's a straightforward way to ensure you pay less tax, keeping in line with your actual expenses.

Impact on your tax code and future tax payments

Your tax code plays a crucial role in how you receive your working from home tax relief. After your claim, HMRC updates your tax code to reflect the newly adjusted tax-free allowance. This change directly influences the amount of income tax you pay in subsequent pay periods.

An updated tax code means less tax is deducted from your monthly or weekly earnings. It's a simple, yet effective method, ensuring that you benefit from the tax relief immediately. This change in your tax code remains effective for the rest of the tax year.

Looking ahead, your future tax payments will also reflect this adjustment. It's essential to note that each tax year is assessed individually. Therefore, if you continue to work from home, you'll need to claim the working from home tax relief for each tax year. Your tax code will be reviewed and adjusted annually, depending on your individual circumstances and claims.

For self-employed individuals, the impact is seen in their annual self-assessment tax return. The relief reduces their taxable income, hence the tax owed for that year. It's a process that requires attention to detail and accuracy in reporting expenses.

In all cases, receiving your tax relief is a process designed to align with your tax obligations and working situation. It ensures fairness and simplicity, allowing you to benefit from legitimate tax deductions.

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