Summary

Many of us have returned to the office part time and now have dedicated spaces for a home office (for example, one end of the kitchen table). In this episode we will consider the impact of working from home and whether you are utilising the available benefits. Enjoy

 

Natasha 00:25

Hello and welcome to Tax Able. Today’s episode is called Home Office Advice, and that’s because today we’re going to discuss the tax benefits of working from home. Today we will cover the impact of any supplied equipment, how to treat your household expenses, issues if you decide to work remotely overseas, and the impact of creating a separate office.

 

Natasha 00:50

As a result of COVID, more of us are working from home either exclusively or for part of the time where your employer provides any equipment or meet your expenses. You should also consider the tax implications.

 

Natasha 01:00

So let’s first dive into equipment. Your employer will generally provide you with this, and most of us would find it extremely unfair if you later found out that you’re going to be taxed on these items as are necessary for you to do your job. Fortunately, HMRC does agree the exemption from tax covers items such as stationery, office materials, office furniture and computer equipment.

 

Natasha 01:26

Now, your home telephone lines may also be covered, but only if there is a clear business need for your employer to provide it. Unfortunately, the tax exemption does not stretch to any extension to your living accommodation for home office, or if you decide to construct a building on your land. We will look at this in more detail later in the episode.

 

Natasha 01:47

Next, we’re going to move on to household expenses. As you’re working from home more frequently, obviously you’re going to incur additional expenses as a result. Now, the expenses that fall within the exemption include any additional costs of heating and lighting in the area, any increased water use, additional household insurance or Internet costs. Any costs that do not vary whether you work at home or not do not qualify. Examples of these are your mortgage payments, rental payments or Council tax.

 

Natasha 02:18

Now, the Internet is a little bit unusual, if you already had an Internet connection and I imagine most of us already, then your employer cannot reimburse the cost tax free. But if you get your timing right and you did not already have an Internet connection and one is needed for you to perform your work, then your employer can meet the cost tax free.

 

Natasha 02:38

So how can you claim your expenses? Well, there’s two options. First off, you can reimburse the actual amount, and to do this you will have to spend a little bit of time and list out all of the costs and determine how much is actually available for you to claim, or instead you can reclaim a flat amount each week. HMRC have set the rate at £6 per week, so it may be worth you investing the time and effort for one month to see which option gives you the most favourable result.

 

Natasha 03:08

Next, we’re going to dive into working remotely overseas and most of us would love to pick up tools and move somewhere warmer. But before you do this, make sure you check in with your advisor. Working overseas can cause tax and compliance challenges for both you and your employer, and we need to consider these in detail before you decide to make a move.

 

Natasha 03:28

Examples of some of the issues that will arise are if you have any dual reporting requirements, as potentially you may have to have tax withheld from your salary. Next, you’ve got immigration law and visas. So, do you have a right to work in the overseas country? Do you need a visa to work there? Do you need to sort this before you go? Then we look at employment law. What legal rights are you entitled to in that country? And are there any working time requirements. Then the one we’re all used to, are there any COVID 19 travel restrictions? Are you going to be able to enter or leave the country? Will you have to quarantine when you get home?

 

Natasha 04:08

The next one is where your business is centrally managed and controlled. So if you are a one man band or an owner managed business and you do decide to leave the country for an extended period of time, you may have an issue, as it could be seen, that your business is centrally managed and controlled outside of the UK. The way that we look at that is we see whether any of the decisions were made while you’re out of the country.

 

Natasha 04:31

Now for company, your decisions are documented in board minutes. What you don’t want to fall in the trap of if you do decide to move overseas for a long period of time and you do make a lot of decisions while you’re out there and the company is deemed to be centrally managed and controlled from outside the UK. You may have to register and pay taxes in that country, but the tax rate could be higher. If you leave partway through a tax year, you’re also going to have complications.

 

Natasha 04:58

The last thing is you’re going to need to find an advisor in that country so there are going to be additional expenses before you or your employees decide to work remotely outside of the UK. Make sure you discuss it in detail with your advisor. Do not get caught out by the idea of working in the sun.

 

Natasha 05:20

Next, we’re going to move on to travel expenses. If you are going to attend the office or another workplace on an occasion, it’s important to consider whether you can get any tax relief on the travel between the home office and that workplace. The general rule for tax relief for travel expenses is that any travel to and from employee’s home to their permanent workplace is deemed ordinary commuting. So, you can’t get relief on that.

 

Natasha 05:41

With the rise from working from home, it’s time to consider whether the other workplace is still deemed to be permanent because you’re not visiting there as frequently. If it is deemed to be a temporary workplace instead, then you can potentially reclaim the cost of traveling to and from. A temporary workplace is somewhere that you broadly spend less than 40% of your working time. Now, there are a few conditions that need to be met, so it’s best to raise this item with your adviser to see if you or any of your employees can obtain a reimbursement.

 

Natasha 06:13

Lastly, we’re going to look at creation of office spaces, and this section is particularly relevant to my owner managed businesses. Most people have created an office space in an existing room. For example, I use the end of my kitchen table, but the idea of a dedicated home office space is undoubtedly attractive, especially if you have young children at home or if the schools are closed. So you may decide to build an extension, create a garden room, or convert the attic. But before you do this, there are certain tax implications that you need to consider.

 

Natasha 06:48

First of all, we’ll look at VAT the beast. Now, if you can reclaim VAT on the building work, it will make a major difference to the building cost, as they can be up to 20% of the cost. While a company cannot reclaim the VAT incurred in providing living accommodation for any of its employees or directors, it can reclaim the VAT where the accommodation is for a business purpose. However, if you create a room and it’s used only partly for a business purpose and partly for a private purpose, then only the part that relates to the business can be reclaimed and you have to make this apportionment on a just and reasonable basis. If HMRC do come calling, you will have to show them your reasoning.

 

Natasha 07:30

So what you need to consider is whether this office space you’ve created is going to be used for a business purpose. But before you instantly say yes, so you can reclaim the VAT, make sure you listen to the next part. Now, capital gains tax often gets overlooked, and that’s because when you sell your own home, usually you do not have to pay any tax if you’ve lived there the entire time because of a special relief called Private Residence Relief, or you may have heard it as PPR.

 

Natasha 07:56

However, PPR relief is compromised where part of the home is used for a business purpose, as the relief is only available to the extent the property is used and lived in as a home. So when you do create an office space, it’s necessary to consider the impact this will have on your availability of PPR and you could end up triggering capital gains tax when you sell your home. It could be quite costly depending on the size of the office.

 

Natasha 08:22

So what do you need to think about? Well, firstly, will the home office be used exclusively for a business purpose? If yes, then it will not qualify for PPR and the portion that relates to the home office will be liable to tax when you sell. Secondly, if the office is going to be used exclusively for a business purpose, then surely it’s a business asset. If you’re happy to take the hit on capital gains tax, then your company can reimburse you for the cost of the office build. All the work can be performed in the company’s name.

 

Natasha 09:03

So we’ve decided it’s a business asset and it’s going to be used for a business purpose. So then surely you need to pay business rates, so you will need to get in touch with your local Council. Next we move on to insurance because if you’re building a home office and it’s going to be used exclusively for a business use, this may affect your house insurance. And finally, planning permission. Depending on the level of work you’re going to perform and the requirements of your local Council, you may need special planning permission to run your business from your home. Again, this depends on the type of business where you live and whether you need a license or not.

 

Natasha 09:39

So, these are all things to consider before you start the build. Another item you may not have thought of, if you are thinking of selling in the near future is what facilities will your office have? If you do construct a separate office, you should consider whether you’re going to include items such as a kitchen or a toilet. It may be possible that the area you’ve built will qualify as a new dwelling in its own right, and if so, it may qualify for a special relief from stamp duty land tax called multiple dwellings relief.

 

Natasha 10:11

You may or may not have heard about this relief as it has been in the papers quite a lot recently as it’s been the flavour of the year. We do not have enough time to cover this relief in detail but if you are considering a building a separate office and you are thinking that you would quite like it to have a toilet or a kitchen, flag this to your advisor as it could mean that you could obtain a higher sales price in the future and that means more money in your pocket. So it’s something to think about.

 

Natasha 10:39

We’ve now come to the end of the episode and what you can take away from today is; if you’re an employee make sure you’re reclaiming all of the available costs from your employer. Make sure you obtain advice before you leave the UK if you or your employees are planning to work overseas and consider whether a home office will be used exclusively for a business purpose and how this will impact your future plan.

 

Natasha 11:03

If you have enjoyed today’s episode, please make sure you click subscribe to listen to the episodes as they’re released.

 

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

 

 

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