The rules surrounding small or medium-sized business (SME) tax relief given for homeworking vary depending on whether you’re a sole trader, a partner (within a partnership), or an employee of the SME; even if you are also the owner.

In this article we’re going to be looking at the tax relief available to employees. If you’re an owner-employee, or you employee others who occasionally work from home, it’s important to know that any costs paid for, or reimbursed to, an employee of your company by yourself, the owner, is liable to have tax paid on it. It is the employee’s responsibility to claim the personal tax relief for themselves.

Wholly, Exclusively, and Necessarily

In order for HM Revenue and Customs (HMRC) to award tax relief for employees working from home, it’s up to the employee in question to prove that the costs in question were incurred “wholly, exclusively, and necessarily” while undertaking duties necessary to carrying out their job.

Because HMRC is stricter when it comes to the necessity of employee expenses compared to the self-employed, if you provide something to your employee to aide them in working from home (a work computer, for instance), they are more likely to deem this item necessary to the employee’s work than if the employee themselves had bought a new work computer and wanted to claim tax relief on it.

Place Homeworking Arrangements in Writing

Though not wholly necessary, we would advise you to place all homeworking arrangements with your employees in writing ahead of them taking affect, as your employees won’t be able to claim  tax relief on costs associated with carrying out their job from home if they have only been doing so informally.

If you do place this arrangement in writing it will allow you, as the employer, to make payments (or reimbursements) for any additional household expenses your employee requires in order to undertake their job, tax free.

What Your Employees Can Claim Tax Relief On

For the most part this will relate to the additional and proportional costs of lighting and heating the area in which the work is taking place (such as your employee’s home office), as well as the additional and proportional costs associated with increased:

  • metered water usage
  • internet charges
  • business telephone calls
  • home contents insurance

To help cover the above costs, you’re allowed to prove your employee with £4.00 per week without having to undergo much formality. Unlike when a self-employed individual works from home, it’s not possible for an employee of your company, even if you yourself are an owner-employee, to claim tax relief on a portion of their rent/mortgage, council tax, or un-metered water rates.

As the employer you will be able to claim capital allowances for the costs of equipment needed by your employees to work from home. This equipment, such as the aforementioned work computer, won’t become a taxable liability for your employee so long as their private (non-work) use of them is insignificant.

For more information on tax relief oppurtunities for your business, click here.

Experienced SME Accountants

To speak with a professional accountant to discuss homeworking tax relief for your employees, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting. In the meantime, if you’re looking for more information on the different services we have available, check out our services page.