10 September 2020
The COVID-19 pandemic has compelled large swathes of the working population to function from home. While working from home is the new norm, will employees incur additional tax? What expenses are deductible, and what are the tax rules?
Do you also have such questions? If yes, don't fret as you are on the right page. Here we are going to consider the tax implications of working from home.
Before moving ahead, let's first understand that tax rules change based on your working status. So, the rules depend on whether you are a sole trader, self-employed, or an employee.
In any case, if you want to maximise your tax position, it is advisable to maintain records. Failing to do so, HMRC may mend the tax position, which can cause several years' worth of interest, tax, and penalties.
Usually, any cost reimbursed to or paid on behalf of an employee will be taxable. You will then have to claim the tax relief yourself and prove that the expenses incurred were crucial in carrying out your job.
Besides, the tax cost also differs according to how the services were provided. For instance, the tax relief is more generous if the service was provided by the employer than the employee buying it for themselves.
So, forward planning and a bit of advice can be fruitful.
Here it is essential to understand that the use of home as office allows certain freedom from a tax charge. The additional household expenses paid by the employer are tax free.
So, the additional costs of lighting, heating, and metered water cost are included. From 6th April 2020, the flat rate to cover the additional cost is increased from £4 a week to £6 a week.
However, tax-free payments are allowed only under the following circumstances:
If payments are made outside the rules, no exemption is allowable.
A temporary exemption is introduced for an employer to help to work from home employees due to the COVID-19 pandemic. It covers reimbursing an employee for getting home equipment such as a chair, table, or monitor.
The tax exemption exists as long as:
Besides, travelling costs are also exempt.
If your business in the Wormley or Walthamstow area and would like any help, we at Pearson McKinsey can guide you about tax relief and homeworking for employees.
Get in touch with an expert tax accountant in London.