Clients often ask if working from home is going to create issues from a tax point of view. There are a number of scenarios to consider.
Employers’ obligations to employee homeworkers:
Equipment, services and supplies
Employers that provide equipment, services and supplies to an employee who works from home, don’t have to report or pay anything if they’re only used for business purposes, or any private use is insignificant.
Additional household expenses
If employers cover the cost of additional household expenses for an employee who works from home, there are no tax complications if all the following apply:
- Employees need to work from home, either because equipment they need isn’t available at your workplace, or their work means they have to live too far away from your workplace to travel there every day.
- The amount you give employee homeworkers is not more than their additional household expenses, and the amount you give them isn’t more than the current weekly limit (£4 a week or £18 a month – 2016-17).
Self-employed homeworkers:
This group can claim for the additional running costs of working from home based on the actual costs and space used, or a flat rate basis if you work more than 25 hours a month from home.
The current, published HMRC flat rates are:
- 25 to 50 hours a month £10 per month
- 51 to 100 hours a month £18 a month
- Over 100 hours a month £26 per month.
As long as the room(s) you use in your home have duality of use – i.e. that they have a private as well as a business function – you will be unlikely to suffer any capital gains tax charge when you sell your property.
Business rates:
According to HMRC, you don’t usually have to pay business rates for home-based businesses if you:
- use a small part of your home for your business, e.g. you use a bedroom as an office
- sell goods by post
You may need to pay business rates as well as Council Tax if:
- your property is part business and part domestic, e.g. if you live above your shop
- you sell goods or services to people who visit your property
- you employ other people to work at your property
- you’ve made changes to your home for your business, e.g. converted a garage to a hairdresser’s
Contact the Valuation Office Agency (VOA) to find out if you should be paying business rates. In Scotland, contact your local assessor.
