A brief explanation of the “use of home as office” deduction rules

Incorporated business

Where a director or employee is reimbursed for the additional household expenses (such as gas or electricity charges) they incur due to having to work from home because either:

  • the facilities they need for their work aren’t available at the workplace, or the home is the workplace, or
  • their work requires them to live too far from the workplace for it to be reasonable for them to travel there on a daily basis

Then as long as the amount reimbursed doesn’t exceed the employee’s additional household expenses, there are no reporting requirements and no tax or NICs to pay.  From 2012-13 onwards, for payments of up to £4 per week, or £18 per month for the monthly paid, it is not necessary to provide any records of the household expenses covered.  For amounts above £4, supporting evidence will be required to show that the payment are no more than the additional household expenses incurred. The guideline rate for 2008-09 to 2011-12 was £3 per week and for 2007-08 and earlier years it was £2 per week.

If the amount reimbursed does exceed the director or employee’s additional expenses, then it counts as earnings and the excess must have tax and NICs deducted via the payroll.

Unincorporated business

Where the home is used partly for the purposes of an unincorporated business, the simplified expenses rules allow a fixed rate deduction for household running costs on heat, light, power, telephone and broadband/internet costs.  The deduction is based on the number of hours spent wholly and exclusively on core business activities in the home, but is only available if those hours exceed 25 per month.
Use of the flat rate deduction for heat, light, power, telephone and internet/broadband does not prohibit a separate deduction for fixed costs such as council tax, insurance and mortgage interest, where an identifiable proportion can be attributed to business use.  
The flat rates are as follows:
Number of hours worked    Flat rate per month
25 or more                          £10
51 or more                          £18
101 or more                        £26

Give us a call to find out more or ask any questions.

Carl Barwick – Tax Manager

Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272 or visit http://www.westbury.co.uk.