Save on tax by working from home

Extra costs can be deducted. Chiara Cavaglieri reports

Working from home has potential benefits for employer and employee alike, with studies finding that it can boost productivity and reduce overheads as well allowing employees to fit work around their lives and avoid transport costs. And this Friday marks the third annual Working from Home Day.

With the recession in full flow, having employees work from home could open up more job opportunities. "As technology advances, more and more companies will realise the huge cost benefits," says Paula Wynne, co-founder of RemoteEmployment.com.

The self-employed will already be spending some, if not all, of their time working from home. This offers the welcome opportunity to avoid a long and stressful commute, saving time and money. However, working from home can incur extra costs which may take a chunk out of any transport savings. Kitting out an office space can be costly and household bills will shoot up, but the good news is that most of these costs can be deducted from your taxable income.

Typical examples of valid expenses which can be set against tax include telephone calls, broadband usage and lighting and heating bills. For example, if business operations take up a room in a five-room house, it's allowed to set up to one-fifth of the total bill against tax. Self-employed people who use their cars for work can make a claim but records must be kept of the number of miles travelled on the job.

Professional expenditure such as accountancy fees and office supplies may also be deducted, but all expenses must be deemed to be what Revenue & Customs refers to as "wholly, exclusively and necessarily in the performance of the duties of the employment". Self-assessment tax returns must be filled in each year and proper records should be kept to justify any expense deductions.

Having a good, up-to-date computer is important for many home-workers and there is tax help available provided it's used for self-employed work or you are a limited company. However, the rules are complex and specific tax advice should be sought.

Working from home isn't just the preserve of the self-employed and neither are the tax benefits. Employees with children aged 16 or under or a disabled child under 18 have the statutory right to ask their employer for flexible work arrangements. But although employers must seriously consider any application, they have no legal requirement to agree. For workers who choose to work from home under a "home-working arrangement" with their employer there is no direct tax relief, but employers are allowed to pay £3 per week to those staff working from home, which is exempt from tax and National Insurance, towards the extra household expenses.

More can be paid but only upon proof that the costs incurred by the employee working from home are higher than the £3 allowance. HMRC is firm about what constitutes a valid expense. "Don't attempt to deduct non-business expenses. If HMRC finds that you have been doing this the penalties will be severe," says Chas Roy-Chowdhury of the Association of Chartered Certified Accountants.

Despite the potential for tax relief, there are pitfalls. "There are several concerns including whether the home insurance policy would be invalidated, and what the local authority would think," says Nick Bamford from advisors Informed Choice. Those running a business from home may be liable for business rates and for capital gains tax when it comes to selling the property if part of the home is used exclusively for work purposes.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Romelu Lukaku puts pen to paper
sport
News
Robyn Lawley
people
Arts and Entertainment
Unhappy days: Resistance spy turned Nobel prize winner Samuel Beckett
books
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
News
i100
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
News
people
Extras
indybest
Travel
Ryan taming: the Celtic Tiger carrier has been trying to improve its image
travelRyanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?
Sport
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
Life and Style
Slim pickings: Spanx premium denim collection
fashionBillionaire founder of Spanx launches range of jeans that offers 'thigh-trimming construction'
News
Sabina Altynbekova has said she wants to be famous for playing volleyball, not her looks
people
News
i100
Life and Style
tech'World's first man-made leaves' could use photosynthesis to help astronauts breathe
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

    £450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

    Senior Analyst - ALM Data - Banking - Halifax

    £350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

    Java developer - Banking - London - Up to £600/day

    £500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

    Day In a Page

    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

    Can we learn to love Ryanair again?

    Four recent travellers give their verdicts on the carrier's improved customer service
    Billionaire founder of Spanx launches range of jeans that offers

    Spanx launches range of jeans

    The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

    Commonwealth Games

    David Millar ready to serve up gold for his beloved Scotland in the end
    UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

    UCI Mountain Bike World Cup

    Downhill all the way to the top for the Atherton siblings
    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star