When employees have to work from home, their expenses often increase as they use their heating, electricity, and internet. Therefore, if you had a legal obligation to work from home during the COVID-19 pandemic, you might be eligible for some tax relief.
In this article, we explore the tax for working from home and take a closer look at work-from-home tax relief, whether you are eligible for it, and what you can claim.
Tax Considerations for Working from Home
Working from home can impact your tax situation in several ways. These include:
- Your business can claim tax relief on utility bills for the parts of your home you use for your business
- If your company is VAT-registered, you can claim the VAT back on the articles you purchase for your company’s use
- If you have a dedicated room to work in, you will have to check if you need to pay Capital Gains Tax when selling your house.
Paying Business Rates
You might have to pay business rates on domestic properties you use for business-related purposes. For instance, if you work from home, offer bed-and-breakfast services or rent your house as a vacation home.
What is the Work from Home Tax Allowance?
In 2003, the government introduced the work-from-home tax relief, allowing anyone working from home to claim back some tax to cover household costs. This used to add up to a £4 per week tax-free sum.
However, since the pandemic forced millions of individuals to work from home, the government increased the amount to £6 per week. And the rules were even changed temporarily, so you did not have to prove that you worked from home regularly. Instead, you could claim up to £140 yearly even if you just worked from home for a single day.
However, with COVID-associated financial measures now eliminated, millions of employees are back in the office either part-time or full-time. Consequently, HMRC has updated its guidelines for the tax year 2022 – 2023 and introduced criteria that make a tax break challenging to get
What Has Changed in the Work-from-Home Allowance?
The eligibility criteria vary depending on which tax year you’re claiming. For the 2020 – 2021 and 2021 – 2022 tax years, you will have to meet the below-mentioned criteria to become eligible for work-from-home tax relief. You can claim for these tax years if:
- Your employer asked you to work from home
- Working from home increases your household costs
- Your company or employer did not cover the additional costs associated with working from home
You can backdate claims for the work-from-home allowance. Thus, there’s still time to claim for the 2020 – 2021 tax year and the 2021 – 2022 tax year.
Nevertheless, the eligibility rules have changed for the 2022 – 2023 tax year. According to the new regulations, you are not eligible for tax relief if you work from home. This entails contracts that allow you to work from home all or some of the time if you work from home due to the pandemic or if your organisation has an office space but you cannot go there as it already has the maximum number of people working.
Remember that you cannot claim work-from-home tax relief if you’re self-employed. Instead, you can include certain expenses on your tax return.
Are You Eligible for Work from Home Tax Relief?
To avail of tax relief, you need to be working at home. This means you should be able to demonstrate that your house is your workplace. HMRC will accept that your house is a workplace if you’re carrying out significant tasks from your house, and such tasks should be related to your current work.
Note that you can only claim work-from-home tax relief for the current 2022 – 2023 tax year if your job requires you to reside far from your office or your employer doesn’t have an office. You cannot claim work-from-home tax relief if you have agreed with your employer that you will voluntarily work from home. You will not be able to claim work-from-home tax relief if you have agreed with your employer that you will voluntarily work from home. If you have decided to work from home on a part or full-time basis after the COVID-19 pandemic, you will not be able to claim tax relief for 2022 – 2023 onwards. This condition holds even if it is mentioned in your contract.
What Can You Claim When You Work from Home?
There are two ways to claim work-from-home tax relief.
- Your organisation pays you £6 a week to cover extra costs you might incur. Several companies give this tax-free allowance.
- If your organisation doesn’t cover the additional expenses, you can ask them to be deducted from your taxable income. To claim the expenses easily, HMRC says that you will not have to justify the amount by showing receipts.
You can claim all extra expenses, such as water (if it’s metered), heat, and electricity. In addition, if you worked from home because of the COVID-19 pandemic in the 2020 – 2021 and 2021 – 2022 tax years but did not apply for tax relief, you can still apply to get your claims backdated. If you meet the criteria, HMRC will issue a tax refund.
After the rules got stricter in April 2022, several individuals can no longer claim tax relief for the current tax year. Nevertheless, if you’re still eligible to receive work-from-home tax relief, your tax code will be adjusted so that you have to pay a lower tax amount.
We hope this guide gave you a comprehensive insight into tax for working from home. However, if you are a self-employed individual and need more information about the tax considerations for people working from home, contact us at ISA Consortium, and we will give you all the details you need.
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