Bob Jones writes:
There was a recent question 'Asking the Experts' regarding limited company expenses and one of the points raised was the use of home as office. This is an area where the HMRC approach has changed as from 2006, for example, prior to that date HMRC were prepared to allow a proportion of council tax in the calculation but that is no longer the case.
Modern technology has resulted in more and more employees carrying out some or all of the duties of their employment in their own homes and, as a result, HMRC has revisited the allowance and are now applying the law in its strictest sense.
The expense must be incurred and paid by the claimant wholly, exclusively and necessarily in the performance of the duties of the employment – and this is a tough test to pass. It follows, therefore, that if the expense is the same before and after there is no expense incurred in the performance of the duties.
It is on this basis that, for example, HMRC will refuse a claim to council tax because the council tax does not increase as a result of working at home. Similarly if you use a room that is, at the same time, being used by somebody else, or normally heated whether or not occupied, then there is no extra on the heating bill but if you use a room that is specifically set aside and heated only when occupied then the heating is likely to increase relevant to the time spent in the room.
Having said that it doesn't matter how much expense is incurred as nothing will be allowable if the expense is not necessary so the first thing to check is whether it is necessary to work at home.
If it is not necessary to work at home there is no allowance no matter how much time you spend there or no matter how much it costs.
For example, if the employee decides to knock off early and finish the day's work at home later, it is obvious that the expense of working at home is not necessarily incurred as a result of the duties of the employment. This is simply the employee's personal choice. Compare this with the employer who moves to new, smaller premises and as a result not all the staff can be accommodated. If an employee has no accommodation at the office and is required by the employer to work at home we have a situation where the expense is necessary. Suffice to say if there is any alternative available to the employee HMRC will exploit that alternative in order to deny the allowance.
HMRC will regard working at home as being necessary if the duties are substantive, that those duties cannot be performed without the use of appropriate facilities, that no such appropriate facilities are available to the employee on the employer's premises and at no time is the employee able to choose between working at the employer's premises or elsewhere.
HMRC will, however, look kindly on those where the nature of the job requires the employee to live so far away from the employer's premises that it is unreasonable to expect daily travel to those premises. Substantive duties are duties that the employee has to carry out and that represent all or part of the central duties of the employment. Simply reading a report at home will not qualify as you do not have to be at home to read a report, however, compare with the duties of an employment that require the use of specialised software that is available on the home computer only and the office is 200 miles away.
You have to ask the question - is home the only place that I can do my job and if the truthful answer to that is “no” then no allowance is due.
On the assumption that home does pass the qualifying test there is then the question of the quantum of the claim. We all have household expenses and HMRC will argue that only where there is an extra expense, as a result of the employment, will an allowance be due. Prior to 2006, HMRC were happy to allow a proportion of the council tax - that is not now the case and the reason behind this is that the council tax is payable whether or not the person works from home.
I would imagine that many of you reading this article will be directors of your own company in which case if working at home is restricted to maintaining the books of the company and/or doing other jobs of an administrative nature then you will not be regarded as working from home. Those duties are not substantive. If, however, the duties that you perform at home earn money for the company then the duties would be classed as “substantive”.
The fact that the director may be entitled to travelling expenses from home to a temporary workplace does not, on its own, make home a workplace for the purpose of claiming an expense in respect of the of use of that home. It has to be more than that.
HMRC are a tight knit organisation and a tighter organisation you could wish to meet. This is proved when it comes to the quantum of the expense as we have another strict interpretation. When it comes to gas and electric only the additional units are allowable. If there any chance that you use more water as a result of working at home you can claim only if the water is metered. If you simply pay water rates then the rate is the same whether or not you work from home whereas if the water is metered you can claim the cost of the extra consumption. All this can prove very difficult and as a magnanimous gesture HMRC are prepared to allow the princely sum of £3 per week exclusive of cost of business telephone calls. (For 2006/07 and 2007/08 the guideline rate was £2 per week). If you want anything higher than the £3 per week then keep records to show how the figure has been calculated.
Expenditure that is not allowable is as follows:
- Council tax - this has to be paid whether or not the premises are used for the employment and, therefore, no part is wholly and exclusively in the performance of the duties.
- Rent - as council tax
- Water Rates - as council tax unless the water is metered and it can be shown that the duties of the employment involve increased water usage.
- Mortgage interest/endowment insurance - not allowable. Interest is a cost of borrowing money and not providing accommodation. The same reason applies to endowment premiums
- Insurance - not allowable. It is not a cost incurred in carrying out the duties of the employment.
Expenditure that is allowable is as follows:
- Electric/Gas - the additional units consumed while the room is being used for work.
- Water - the metered cost of water used in the performance of the duties.
- Telephone – where a private phone line is used - the unit costs of business telephone calls including dial-up Internet access.
It all boils down to two questions.
1. Is it absolutely necessary for me to work at home and nowhere else? On the assumption that the answer is an affirmative then -
2 To what extent, as result of working at home, do I incur extra expense?
Editor's note: My thanks to Bob Jones for this informative article. Bob is currently running expenses training courses for umbrella staff and senior management. For more information see:
Bob Jones launches training course for umbrellas (Shout99, May 2010)
or email firstname.lastname@example.org
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Susie Hughes © Shout99 2010