Are there any tax implications of working at/from home ?
Taxation is a complex issue and readers are advised to seek guidance from their financial advisors and local HMRC offices. Different taxation rules will apply depending on the home worker’s employment status – employed or self-employed.
INCOME TAX
If you are employed, it is important to be able to prove that working at home is a requirement of your employer and that there is an ‘objective reason’ for doing so, for the specific job that you are doing.
A range of allowances are available and should be outlined in your employer’s home working policies and procedures. Regardless of the method of payment, all non-cash benefits and expenses provided to employees in the course of their employment are normally taxed under PAYE. The Finance Act 2000 ruled that if the employer provides equipment to be used by an employee in their home, then provided that the non-business related use of that equipment is ‘not significant’, then no taxable Benefit in Kind (BIK) will be applicable.
Employers can also contract, supply and pay for Internet connections and telecoms services rental fees without incurring BIK problems.
If you are a ‘home-based’ employee, (eg. if your home address appears on your business cards), then the way that work-related travel expenses are treated for taxation purposes is different to being based in the employee’s premises.
Furniture provided by the employer to an employed home worker is normally treated as a BIK and should be recorded on the annual P11D Income Tax return form.
If you are self-employed, a range of possible claims may be allowable against tax covering a percentage of the running costs of the home. You will probably be able to claim for a percentage of heating, lighting, telephone, depreciation of fixtures and fittings, installation of extra power supply, cleaning costs, business insurance, office equipment and refurbishment, postage, stationery, work-related publications, and membership of professional bodies related to your work.
CAPITAL GAINS TAX (CGT)
Generally, if you classify part of your house for business purposes and claim costs such as mortgage interest, heating and lighting, then the work part of the building could become liable for Capital gains Tax (CGT). The CGT levied is in proportion to the percentage of the house being used for business purposes. If two rooms in a 12-room house are designated as being for ‘business purposes’, then CGT would be applied as though a 1/6th Gain had been made in the relevant Tax Year.
