The COVID-19 pandemic transformed the way we work, forcing many businesses to adapt to remote working setups. While some companies returned to the office, others made the decision to maintain a remote or hybrid work model. While working from home offers various advantages, it also comes with certain tax implications that both employers and employees need to be aware of. This article aims to shed light on these considerations, specifically tailored for small to medium-sized businesses (SMBs).
For Employees
Expense Deductions
In the UK, you may be able to claim tax relief on additional costs incurred while working from home, such as heating, electricity, and metered water. The fixed-rate for this is £6 a week (£26 a month) without the need to provide any evidence of extra costs. The thing to bear in mind now is that the criteria for claiming has tightened, in that you can now claim only if your employer has no office, or your job requires you to live far away from your office – it is no longer than case that you can claim if you choose to work from home, or even if it is in your work contract. see here
Equipment Purchase
If you have purchased office equipment to facilitate your work-from-home setup, tax deductions may not be straightforward. The employer usually handles this aspect, but if you have spent out-of-pocket, consult a tax advisor for individual advice.
For Employers
Employer’s Allowance
Employers can pay the £6 weekly allowance to employees for the additional costs they incur when working from home, without the employee having to pay tax or National Insurance contributions. Again, see above and the link for full details
Asset Depreciation
Business assets like computers, furniture, and other equipment used by remote employees could be eligible for capital allowances, allowing the business to write off the cost of these assets against taxable profits.
VAT Reclaim
Businesses registered for VAT can generally reclaim the VAT paid on goods and services bought for business use, including those used by remote employees.
Self-Employed
Simplified Expenses
Self-employed individuals can use simplified expenses to calculate allowable expenses for business use of their home. This involves calculating the amount of time spent working from home and applying it to a fixed rate, which varies based on the number of hours worked.
Capital Gains Tax
When you sell a property you’ve used as your office, you may be required to pay Capital Gains Tax. The ‘residential relief’ may be restricted in this situation.
Record-Keeping
Proper record-keeping is crucial for all parties involved. Employers should keep accurate records of payments and allowances, and employees should maintain evidence of expenses. Self-employed individuals should also maintain detailed logs for simplified expenses calculations.
As more people transition to working from home, understanding the tax implications becomes increasingly important for both employees and employers. Given the complexities involved in tax law, it’s always advisable to consult a tax professional for tailored advice.
If you’re a small to medium-sized business in the Midlands area looking for more personalised advice, don’t hesitate to reach out to specialists who can guide you through the intricacies of tax implications related to working from home.
Would you like to delve deeper into the tax implications of remote work for your business? Contact us today to schedule a consultation.
Disclaimer: This article is intended for informational purposes only and should not be construed as legal or tax advice. Consult your tax advisor for advice tailored to your individual circumstances.
