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Employers need to understand the tax implications when employees work from home

Posted: 03/12/12 by MOORE

Employers should do their homework to understand fully how the tax rules work when employees work from home.

Moore Stephens Chartered Accountants in Corby warns that taxable benefits of working from home may not be as straightforward as they seem. When employees are required to work at home, tax relief is available for expenses incurred as a result – such as the cost of business telephone calls or additional heating and lighting. Costs that would be incurred in any case, such as mortgage payments or council tax, are excluded, but so are costs related to facilities where there is both business and private use, such as telephone rental or internet access.

If employers reimburse staff for the allowable costs, the payments will not be taxable and for employer reimbursements of up to £4 per week or £18 per month, HMRC requires no evidence of the expenses incurred. Alternatively, if you are a home-working employee who has to bear the costs yourself, you can claim relief from the taxman, if you provide appropriate evidence.

Employees who are not required to work at home but by agreement do so on a regular basis (for example, on two days every week) can still be reimbursed by their employers for allowable costs incurred. “In the absence of reimbursement, however, you cannot claim relief yourself,” said Pete Simons, Partner and tax specialist at Moore Stephens in Corby. “Also, if you only work at home occasionally, no relief is available for expenses – whether reimbursed or not.”

Some employers provide equipment or facilities, such as a computer or an internet connection to enable home working. If private use of these is not significant, no tax liability arises for the employee. Where there is significant private use, however, this will give rise to a taxable benefit. “Finally, remember that if you use a part of your house exclusively for work, any gain relating to that part will not be eligible for the usual capital gains tax exemption on the sale of your main home,” said Pete. “But if you use the space for domestic purposes as well, perhaps as a guest bedroom, the exemption will still be available.”

For more information, and clarification on the rules relating to home workers, contact Pete Simons at Moore Stephens Chartered Accountants on 01536 461900 or email or via @PhilipWalding on Twitter

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