In Tax Hacks, our columnist Mike Warburton – previously a tax director with accountants Grant Thornton – brings you his best tax-saving tips. Tax Hacks is published twice a month on Tuesday mornings
For the last ten years my son has worked for the British subsidiary of a large Swiss pharmaceutical company. In January he accepted an offer to relocate and work with their American subsidiary in New Jersey, starting this August.
With the Covid outbreak he cannot now move physically to the US but he is still needed in the role and with so many of his colleagues working from home anyway it was agreed that he would work exclusively for the US company but from his home in Blighty. Apart from working with a five hour time shift it all seems to be going fine at the moment.
The pandemic has thrown up many anomalies like this. There have even been suggestions that you could relocate to a low tax country like Dubai and work remotely for your UK employer although this strategy carries several risks. It has, however, focused attention on the tax implications of home working.
Below are the main rules if you are working as an employee. If you are self-employed the rules are more generous but would require a separate article.
According to the Office for National Statistics, 46pc of employees worked from home in April including 57pc in London. Given that statistic I was surprised to see that, according to HMRC, only 54,800 have used their online portal to claim relief. HMRC is encouraging others to do so and those claiming tax relief for working from home can apply directly through GOV.UK.
HMRC has said that it will allow claims of £6 per week but this is not a limit. It is simply what they will accept without asking for evidence.
It is therefore important to consider what you can claim from the detailed list of allowable expenses summarised in the HMRC manuals at EIM32760 onwards. This includes some special Covid related claims outlined in EIM32795. A separate set of rules also apply for payments made by an employer for home working at EIM01472.
If your employer reimburses these expenses, your tax claim will be against the P11D “benefit in kind” unless already covered by an agreed dispensation.
What do you need to prove to HMRC?
The test for an employee is that the expenses are wholly, exclusively and necessarily incurred in the employment. In practice this means that the additional costs of working from home should be allowable.
For example, you may need additional gas or electricity to keep the house warm when it would not otherwise be necessary. If your water is metered it may be possible to show that part of these costs are a result of home working. Telephone and internet charges are very likely to increase.
It is important that you retain records to demonstrate the impact of home working on these costs. For example, make sure that your bills are based on supplier or customer readings rather than estimates. Clearly most people will have reduced travel costs but you can ignore the offsetting impact of this. Costs which will not be allowed are council tax, home insurance, mortgage interest or rent.
You can find a useful set of examples on EIM32790. The rules require the home working to be “substantive” and come about because of requirement of the employment rather the choice of the employee. However, even if your office or other workplace is still operating, with Covid many employers need a significant number of staff to work from home so that they can maintain effective social distancing. In these circumstances I would regard home working as a requirement rather than a personal choice. I certainly intend to claim this in my role as (unpaid) tax agent for my son. He is legally barred from travelling to his new office.
Remember that you do not have to accept what HMRC says. I once acted for a lady who owned and was a director several successful care homes but lived and frequently worked away from these homes in her large country house which had extensive grounds.
HMRC objected when she claimed tax relief for part of the cost of her housekeeper and gardener especially after they had viewed her property. We went to the commissioners who agreed with us that she could claim a third of these costs on the basis that relatives of her elderly customers needed to visit her at her “office” and that this required a certain ambiance and setting. The inspector was not happy!
Finally, remember to make sure that whatever rooms you occupy are not used exclusively for home working. HMRC may attempt to restrict the capital gains tax private residence exemption when you move but they can only do so for rooms used exclusively for business purposes. I am sure that at weekends there is some general family use even if it is just allowing the children to play computer games at your desk!