With the advent of the COVID-19 global pandemic, working-from-home became a standard routine for many people in the UK. Consequently, workers started bearing some business costs, which were previously shouldered by employers. In response, the HMRC (Her Majesty’s Revenue and Customs) introduced guidelines allowing employees to claim tax relief on certain expenses incurred while working from home. This article will explore how UK residents can claim tax relief on work-from-home expenses in 2023.
Understanding Tax Relief on Work-From-Home Expenses
Before delving into the process of tax relief claims, it’s essential to understand what it entails and the kind of costs it covers. Generally, tax relief refers to the reduction of tax liability, offering savings on your tax bill. When you claim tax relief on your work-from-home expenses, it means that you will pay less tax for the year, and your income will be slightly higher.
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Eligible work-from-home expenses include business costs that you must pay due to the demands of your job. For example, additional heating or electricity costs, business calls, or potentially, the extra internet cost. HMRC has given clear guidance on what can be claimed. However, it’s important to note that costs that would stay the same whether you are working at home or not, such as mortgage interest, rent, or council tax, do not qualify for this relief.
How to Determine if You’re Eligible to Claim
HMRC has set specific criteria for those who can claim tax relief on work-from-home expenses. Primarily, your employer must require you to work from home. It is not enough that you choose to work from home; it must be a necessity for your role. For instance, if your company office is closed due to a lockdown, you are eligible.
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Moreover, the tax relief is only available to those who have seen a rise in costs due to working from home. If you have not incurred any extra expenses, you cannot claim. It’s also vital to note that if your employer already gives you an allowance for your expenses, you cannot claim as well.
The Process of Claiming Tax Relief
Claiming tax relief on your work-from-home costs is not as daunting as it might seem. HMRC has made the process relatively straightforward. You can either claim relief on the actual costs you’ve incurred over £6 per week without needing to provide evidence, or if your costs are higher, on the actual costs you’ve incurred with evidence.
To start the process, you need to fill an online P87 form via the Government Gateway, or by posting a physical copy to HMRC. You will be required to provide your employer’s name and PAYE reference (which you can find on your payslip or P60), along with your job title. For claims over £2,500 in a year, you must fill out a Self Assessment tax return.
What Happens After Claiming Tax Relief
After submitting your claim, HMRC will review it and determine if you’re eligible for tax relief on your work-from-home expenses. If approved, your tax code will be changed for the current tax year, reducing the amount of tax you need to pay for the rest of the year. It’s important to note that the relief will be given at the rate at which you pay tax. For example, if you pay the 20% basic rate of tax and claim tax relief on £6 a week, you could get £1.20 per week in tax relief (20% of £6).
Remember, you need to make a new claim for each tax year. This means you’ll have to file a fresh claim in the following year if you’re still incurring extra costs due to working from home.
Possible Pitfalls to Avoid
While the process of claiming tax relief on work-from-home expenses is straightforward, there are potential pitfalls to avoid. Firstly, ensuring you are eligible before making a claim will save you potential trouble with HMRC. Secondly, be certain that any costs you are claiming are solely for the purpose of your work. Personal or non-work related expenses will not be accepted for tax relief.
Moreover, it’s crucial to keep records of your expenses. This is particularly important if you’re claiming the actual costs you’ve incurred and they amount to more than £6 per week. These records may be necessary if HMRC decides to inquire into your claim.
By understanding these guidelines, you can confidently navigate the process of claiming tax relief on your work-from-home expenses. As the pandemic continues to influence working norms, it’s important to take advantage of these relief options to ease your financial burden. Remember, every penny saved counts!
Tax Relief for Self-Employed and Limited Company Workers
For self-employed individuals or those working under a limited company, the process of claiming tax relief on work-from-home expenses slightly differs. Instead of filling out the P87 form, you will need to complete a Self Assessment tax return.
Self-employed individuals can claim a portion of their home expenses if part of their home is being used solely for business purposes regularly. This is commonly referred to as the ‘home office’ expense. The costs you can claim include heating, electricity, Council Tax, mortgage interest or rent, internet and phone use. However, you must find a reasonable method of dividing your costs, for instance, by the number of rooms you use for business or the amount of time you spend working from home.
If you work under a limited company and use a room in your house solely for business purposes, you can claim ‘rent’ from your company for the use of the room. The rent would then be a deductible expense for your company, reducing its Corporation Tax liability. However, it is important to note that the ‘rent’ should be a market value amount and not excessive to avoid any challenges from HMRC.
The Impact of Tax Relief on Your Income Tax
Claiming tax relief on work-from-home expenses has a direct impact on your income tax. By reducing your taxable income, you can decrease your income tax liability for the tax year. For instance, if you claim £312 for the year (£6 per week for 52 weeks) and you’re a basic rate taxpayer (20%), you’ll get £62.40 off your income tax bill for the year.
However, if the total value of your expenses claim is higher than the flat rate of £6 per week, you’ll need to claim the exact amount and provide evidence. The tax relief you’ll receive will be calculated based on your income tax band. This means a higher rate taxpayer will get more tax relief compared to a basic rate taxpayer for the same amount of expenses.
Conclusion
In conclusion, the ability to claim tax relief on work-from-home expenses is a significant advantage for UK residents in the current environment. It allows you to recoup some of the additional costs incurred due to the transition to home-based work. However, it is crucial to understand the process, eligibility criteria, and potential pitfalls to avoid any issues with HMRC.
Regardless of whether you’re an employee, self-employed, or working under a limited company, this tax relief can result in meaningful savings. By keeping track of your expenses, understanding the rules, and making the necessary claims each tax year, you can ensure you’re not paying more tax than you need to. So, as you continue to navigate the work-from-home landscape, remember to take full advantage of this relief and decrease your income tax burden. After all, every penny counts.
