Working from home has become the new way of working for many companies and their employees, and there is a good chance that it will stay that way after the pandemic. Which is good, since working from home provides workers with intriguing benefits, and, assuming a business trusts its workers, many benefits for a business as well.

For an employer, having employees working out of the office allows for minimised office space, thus saving on rental and utility costs. Having employees work from home often leads to happier and more productive workers, because on the employee/worker level, working from home allows someone to make choices that ensure their productivity and efficiency are guaranteed. Stability and consistency contribute to the perfect working environment.

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For entrepreneurs and founders, working from home provides the tempting advantage of lowering costs and working within a practical budget. Costs can be kept down, stability is maintained, and the worker has more freedom over their work. Before the pandemic, only 1 in 15 people worked from home completely or on a regular basis. Nowadays about 1 in 3 people is working from home. It is expected that after the pandemic 1 in 5 people will continue to work from home, or will work from home more often. This is why it’s important that workers and employers understand the tax implications, which we explain in this blog.

Determination of business expenses

One of the most daunting parts of approaching the tax system when working from home is determining what is eligible to be named as a business expense. For many, utilities and services become a point of uncertainty. When costs are used both for business and personal aspects, many workers choose one of two options: writing off the entire expense, which could get you into trouble; or claiming nothing, and you will miss out on valid benefits.

“The HMRC suggests a middle ground between the two.”

However, the HMRC suggests a middle ground between the two: make a sensible estimate of the proportion of each bill that applies to your work and claim that amount. The HMRC also provides an exhaustive manual with clear descriptions and examples of what can be claimed, and how much should be claimed. In general, claim the proportion of a cost that applies to the business, whether it be council tax, mortgage interest, rent, repairs, cleaning, metered water charges, etc. 

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Xeinadin Group

Making it simpler

Luckily, the HMRC offers a simpler system for determining business expenses for those who work from home for more than 25 hours per month and are self-employed as a sole-trader or who operate an unincorporated business. This flat-rate system allows workers to skip calculations and use predetermined values based on the number of hours per month they work from home:

Hours worked from home per month

25 to 50

51 to 100

Above 101

Flat rate per month

£10

£18

£26

* note: these values apply only to utilities

Important note

For some, working from home involves having a room in their house that is a dedicated office. Because this area of the home no longer falls under the ‘private residence’ descriptor, when the home is sold, it could reduce the amount of capital gains tax relief you can claim.

In reality, for most people working from home, their office space is rarely just that; it may double as a bedroom, gym, or storage space. In these cases, the ‘private residence’ descriptor still applies.

Risk and reward

Working from home provides many powerful incentives, so the complexities of it certainly shouldn’t prevent you from doing it (more often) when everything is back to normal. However, because it is a relatively difficult system, it is always a good idea to consult a professional who can help you maximise your reward and minimise the risk. Leave a contact request here if you need our help.

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