The working-from-home rules that could shave £300 off your tax bill

It’s no secret that Britain’s workforce is still feeling the effects of the pandemic; millions of people changed their working habits, and many are unwilling to return to spending all of their working hours in an office. 

Many companies sold their office space, instead offering fully remote or hybrid-style jobs where employees are only expected in the office a couple of times a week. 

As such, Britain is now the working from home capital of Europe. Employees may cite many benefits to this style of working, but the tax system offers surprisingly few incentives for employees, particularly compared to those who work for themselves.

Unlike employed staff, the 4.4 million self-employed workers can offset many household expenses against their tax bill. This army of self-employed workers is marching higher with 4.4 million now operating in the UK – that’s 154,000 more than this time last year, according to official data. 

Here, Telegraph Money explains exactly what you can claim for working from home.

If you’re an employee working from both home and office

When workers were instructed, wherever possible, to work from home during the pandemic the Government opened a loophole allowing all workers to claim a £6 per week flat-rate deduction against regular employment income. 

This meant that anyone who worked from home during the 2020-21 or 2021-22 tax years could claim the tax relief for the full year, even if they had only actually worked from home for a day. 

The good news is that anyone who hasn’t made a claim for these tax years can still make a backdated claim; you have until April 5 2025 to make claims for 2020-21, and until April 5 2026 to claim for 2021-22. You can make a claim online: www.tax.service.gov.uk/claim-tax-relief-expenses/claim-any-other-expense.

The bad news is this loophole has been closed, so you can’t make the same claim for 2022-23 onwards. Employees can only make tax relief claims for working from home now if your job requires you to live a long way from your office, or if you have no office to go to.

You can’t make claims if you choose to work from home some or all of the time, or if you can’t go into your office every day because it’s too full. It’s also no longer possible to claim tax relief if you’re working from home due to coronavirus.

What’s the flat-rate of tax relief?

Any employees who are eligible can get tax relief on a flat-rate of £6 per week.

Basic-rate taxpayers get £1.20 a week – which is the 20pc tax relief on £6 – which totals £62.40 for the year.

Higher-rate taxpayers receive £2.40 a week, or £124.80 per tax year, while top-rate taxpayers will bank £2.70 a week, or £140.40 per tax year.

The tax relief will usually be paid via changing your tax code, and is a recognition of the extra costs you’ll be paying (eg energy) that you wouldn’t pay if you were working in an office. You don’t need to provide proof of your expenses to HMRC for this.

If you feel that this level of tax relief doesn’t cover the extra you’re paying from working from home, you may be able to claim your actual expenses – but the process is trickier. 

In order to claim your “actual business costs” you will need to be able to back up your spending claims with proof, such as bank statements, bills and invoices, showing the costs incurred while working at home.

Robert Salter of accountancy firm Blick Rothenberg says: “This can be reasonably difficult and can require an employee to retain receipts and invoices, for example, for a period of at least four years following the relevant tax year for bills incurred ‘wholly, exclusively and necessarily in the course of business’ at home.

“Only a relatively small number of employees claim any additional home office relief each year.”

Ian Goodwin, tax partner at Mazars, highlights how working out the costings can be challenging. 

“Using broadband as an example,” he says. “It is extremely difficult to claim for tax relief on home broadband given there will be a personal benefit to the home broadband and HMRC does not often accept that it is wholly exclusively and necessarily for business use, particularly for flexible home workers.

“There are situations where HMRC may accept tax relief can be claimed on a second faster broadband line for business purposes only.”

It’s not just the taxman you can look to for help. Some companies offer financial assistance on top of your contracted salary, as they will be saving on their own costs – for instance, if they’ve sold the company’s office. Any such payment from your employer would be subject to income tax, however.

If you’re self-employed and work from home

If you work as a sole trader and your home is your workplace, unlike those who are employed, there are plenty of tax allowances to help with increased household bills.

As with employed workers, you can either choose to go for a flat-rate of tax relief or detail your precise expenses.

The flat-rate tax relief is based on the number of hours worked from home each month, which can save you more than £300 a year in tax.

If you want to claim specific expenses, you’re allowed to take a proportion of some of your home running costs used for work purposes. This reduces your profit and therefore means you’ll pay less tax.

However, you’ll only be able to claim for the proportion of expenses based on the area you use to work, and the amount of time you spend working there. For example, if you do all of your work from a specific home office room, and you wanted to claim for the cost of heating and lighting that room while you work, you’d need to work out the proportional size of the room compared to the whole property, and the proportional amount of time you spend working in the room.

The proportion you deduct comes off your total profit. For example, if your turnover is £50,000, and you claim £10,000 in allowable expenses, you only pay tax on £40,000 – known as your taxable profit.

You may be able to claim a proportion of costs for outgoings such as:

• Council tax
• Mortgage interest
• Rent
• Heating
• Electricity
• Internet and phone use

However, some of the deductions aren’t quite cut and dry, warned Mr Salter. “You might be able to deduct a proportion of maintenance costs of your home office,” he said. 

“But if the home office is partly used for business and partly for the kids to do their homework then only an element of the costs would be allowed.”

While it is attractive for self-employed people to claim tax relief on wider household expenditure, the reality is that such deductions are subject to quite strict conditions.

If you’re unsure about what can and can’t be included as expenses, it could pay to get professional tax advice to make sure you get it right.