The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
TAX RELIEF FOR WORKING FROM HOME
So long as they carry out work from home self-employed individuals they can claim a proportion of their home costs against their profits for tax purposes.
What though is the situation for the increasing number of employed workers who are required to work from home?
First let’s look at the situation where you have a generous employer.
Your employer agrees to pay you for the extra costs you incur as a result of working from home. You can demonstrate that, working from home, your gas and electricity charges are £500 per annum higher than they would otherwise be. In these circumstances your employer can pay you up to £500 per annum free of tax. You must provide your employer with the necessary evidence to support your extra expenses.
That is all fine and may produce the best outcome but what if you can’t easily evidence an increase in your home costs?
No problem. Your employer can pay you a fixed sum instead. An employer can pay up to £4 per week with no evidence of actual expenditure required. The £4 per week is tax free in your hands.
Now let’s look at the situation where your employer wants you to work from home but isn’t willing to contribute towards your extra costs.
This is where the taxman chips in with some modest help.
Provided you can demonstrate that
· you carry out ‘substantive’ employment duties at home i.e. duties which are central to your employment,
· those duties cannot be performed without the use of appropriate facilities,
· no such facilities are available to you on your employer’s premises and
· you are not able to choose between working at your employer’s premises or elsewhere,
then you can claim as a deduction from your income the extra costs you incur as a result of working from home.
As before, the costs are limited to such things as gas and electricity. Levels of council tax, rent and mortgage interest are not affected by working from home so they form no part of the claim.
Experience shows HMRC looks closely at claims of this kind. But provided the conditions are met persistence should bring reward.
If you really don’t relish the prospect of arguing your case, there is an alternative.
You can claim a deduction from your taxable income of £4 per week without having to provide any proof of expenditure.
What is that worth in real money?
52 weeks at £4 per week makes a claim of £208. To a 20% taxpayer that is worth £41.60. To a 40% taxpayer it is worth £83.20.
Is that going to cover the cost of the extra gas and electricity incurred as a result of working from home?
For most employees, it probably is not.
Is there an answer?
Yes, there is. But it will only work if you have a benevolent employer.
Enter into a licence agreement with your employer. Grant your employer a limited right to use your home office facilities. In return for the use of these facilities your employer pays you a rent. Set the rent at a level broadly equal to the costs you incur at home as a result of working there. Because the amounts you receive are dealt with under the rules applying to rental income rather than the rules applying to employment income you can include in your cost calculations an element of council tax and rent or mortgage interest.
The rent you receive from your employer broadly equals your expenses so you have no profit and therefore no tax liability.
The main advantage for your employer is that he / she gets money to you free of employer’s national insurance.
The main advantage to you is that you pay for some of your home expenses out of pre-tax rather than post-tax income.
Our Advice: Of course, it is easy to avail yourself of the licence arrangement if you happen to work for your own company. One of the first things we do with all new corporate clients is to draw up a licence agreement for use of the owner’s home.
Have you received an email purporting to be from HMRC in which you are informed you are owed a refund of tax?
It is a scam.
HMRC will never contact you about tax repayments by email.
Here is some useful advice.
SYMPATHY FOR BANKERS?
Here is an interesting case.
If you obtain a loan from your employer and the rate of interest you pay is lower than the ‘official’ rate of interest, you are liable to pay tax on a ‘benefit in kind’.
The government sets the official rate of interest. The rate has been 4% since 6 April 2010.
As those of you who monitor these things will know, lenders have offered some very low interest mortgages in recent years.
Mr Flanagan, a bank employee, obtained a mortgage loan at a favourable rate, not available to customers of the bank.
HMRC claimed he should be charged to income tax on the difference between interest calculated at the official rate and interest charged by the bank.
Mr Flanagan appealed. He argued he did not receive a benefit. He pointed out he could have secured a commercially available mortgage at a rate much lower than the official rate.
The tax tribunal said the taxpayer had been caught in a situation where the amount of his benefit was calculated according to inflexible statutory rules rather than by reference to the actual benefit obtained or any criteria designed to achieve a fair outcome.
So you would expect the tribunal to decide in his favour, wouldn’t you?
The tribunal held the taxpayer was liable. It considered its own verdict to be unfair but stated it was powerless to overturn the HMRC assertion which was technically correct.
The taxpayer’s appeal was dismissed.
And the question we are all asking ourselves is –would the verdict have been different if he hadn’t been a banker?
Two boys are playing football in a Manchester park when one of them is attacked by a Rottweiler. Thinking quickly, his friend rips a plank of wood from a fence, forces it into the dog’s collar and twists it, breaking the dog’s neck.
All the while a newspaper reporter who was taking a stroll through the park is watching. He rushes over, introduces himself and takes out his pad and pencil and starts his story for the next edition.
He writes “Manchester City fan saves friend from vicious animal.”
The boy interrupts. “But I am not a City fan.”
The reporter starts again. “Manchester United fan saves friend from horrific attack.”
The boy interrupts again. “I’m not a United fan either.”
The reporter asks, “Who do you support then?”
The headline the next day reads “Leeds fan kills family pet.”
Copyright: K P Bonney & Co LLP 2012. All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers. Disclaimer: The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.
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