Maximize WFH tax deduction

Many workers who partly or wholly work from home (WFH) can, either, be reimbursed for this tax free (if their employer permits) or claim a valid tax deduction for this expense. HMRC have now amended the special rules that they introduced during Covid for the maximum WFH deduction that can be claimed.

For employees (including business shareholder directors)

Eligible to claim when substantive duties of employment are required to be performed at home and your employer does not have business premises elsewhere (and it is not simply a personal preference). A choice of:

1. Fixed rate deduction

• £6 per week (without need to justify actual expenses incurred)

2. Actual marginal costs

Additional household costs incurred whilst WFH, calculated as an appropriate apportionment (based on number of rooms, floor space, usage, etc) of the following actual additional costs incurred by the employee:

• light and heat
• water rates, only if metered
• telephone – cost of calls
• business rates (if applicable)

3. Pro-rata actual total costs (Quasi-rent)

An appropriate apportionment (based on number of rooms, floor space, usage, etc) of the following actual costs incurred by the business owner, providing evidenced by a licence agreement and entered on personal tax return as nil profit rental income:

• rent, if home is rented
• mortgage interest, if home is owned
• council tax
• water rates, only if metered
• light and heat
• telephone line rental, internet, and cost of calls
• home insurance
• house repairs
• business equipment repairs
• cleaning
• revenue expenditure in connection with converting part of home into office
• capital allowances for tools in connection with the above
• capital allowances for business equipment and business fixtures and fittings.

For self employed business owners

You can claim either:

1. Fixed rate deduction

• £6 per week (without need to justify actual expenses incurred)

2. Monthly rate deduction

• Per HMRC ‘simplified expenses’ maximum rates.

2. Pro-rata actual total costs

An appropriate apportionment (based on number of rooms, floor space, usage, etc) of the following actual costs incurred by the business owner:

• rent, if home is rented
• mortgage interest, if home is owned
• council tax
• water rates, only if metered
• light and heat
• telephone line rental, internet, and cost of calls
• home insurance
• house repairs
• business equipment repairs
• cleaning
• revenue expenditure in connection with converting part of home into office
• capital allowances for tools in connection with the above
• capital allowances for business equipment and business fixtures and fittings.

As with all tax claims, care should be exercised to ensure you do not become liable to business rates and, when you sell your home, part of the capital gain does not lose its current principal private residence tax exemption status.

With careful structuring, home office buildings/pods can be funded by a business (although no tax deduction claimed).

Disclaimer - All information in this post was correct at time of writing.