Expenses guide to umbrella contracting from home
The use of home as an office is an area of allowances where the approach by HM Revenue & Customs has been subject to change that occasional ‘home-office’ users, such as umbrella company workers, can’t afford to forget, writes Bob, the retired tax inspector. Before 2006, and for workers who worked from home while carrying out the duties of their employment, HMRC were prepared to allow a proportion of council tax in the calculation. But that that is no longer the case.
Tougher line by HMRC
Today, the expense must be incurred and paid by the claimant wholly, exclusively and necessarily in the performance of the duties of the employment. This is a tough test to pass. It follows, therefore, that if the cost to the home is the same before and after, then there is no expense incurred in the performance of the duties.
Council tax no longer claimable
It on this basis that HMRC will refuse a claim to council tax because the council tax does not increase as a result of working at home. Similarly if you use a room that is, at the same time, being used by somebody else, or normally heated whether or not occupied, then there is no extra on the heating bill. In contrast, if you use a room that is specifically set aside and heated only when occupied then the heating is likely to increase relevant to the time spent in the room.
Necessary to work from home?
That said, it doesn’t matter how much expense is incurred as nothing will be allowable if the expense is not necessary so the first thing to check is whether it is necessary to work at home.
If it is not necessary to work at home, there is no allowance no matter how much time you spend there or no matter how much it costs.
For example if you, the employee, decide to knock off early and finish the day’s work at home later, the expense of working at home is not necessarily incurred as a result of the duties of employment. The working from home is simply the employee’s personal choice.
Compare this with the employer who moves to new, smaller premises and as a result not all the staff can be accommodated. If an employee has no accommodation at the office and is required by the employer to work at home, the expense appears to be necessary. It should be noted that if there is an alternative working environment available to the employee, HMRC will exploit the alternative in order to deny the allowance.
HMRC will regard working at home as being necessary if the duties are substantive, that those duties cannot be performed without the use of appropriate facilities, that no such appropriate facilities are available to the employee on the employer’s premises and at no time is the employee able to choose between working at the employer’s premises or elsewhere.
HMRC will, however look kindly on those where the nature of the job requires the employee to live so far away from the employer’s premises that is unreasonable to expect daily travel to those premises. Substantive duties are duties that the employee has to carry out and that represents all or part of the central duties of employment. Simply reading a report at home will not qualify as you do not have to be at home to read a report. Duties of employment that require you to use special software that is available only on your home computer, where the employer’s office is 200 miles away, would appear to qualify.
Pose the ultimate allowances questions
As well as considering whether the duties are substantive, you have to ask yourself the question – is home the only place that I can do my job? If the truthful answer is ‘no’ then no allowance is due. (If ‘yes’, then ask, ‘To what extent, as a result of working at home, do I incur extra expense?)
It’s not just umbrella contractors who will not be permitted an allowance by HMRC that the worker may feel they deserve. If you are a director of your own limited company, maintaining the books of the company and/or doing other jobs of an administrative nature in your private residence will be NOT be regarded as working from home. The duties mentioned are not substantive.
If however, the duties that you perform at home earn money for the company then the duties would be classed as “substantive.” Fortunately, the fact that the director may be entitled to travelling expenses from home to a temporary workplace does not (on its own) make home ‘the workplace’ for the purpose of claiming an expenses in respect of the use of that home. It has to be more than that.
Help with your utility bills, potentially
When it comes to gas and electric, only the additional units are allowable. With water, if there is any chance that you use more water as a result of working at home you can claim, but only if the water is metered. If you simply pay water rates then the rate is the same whether or not you work from home, whereas if the water is metered you can claim the cost of the extra consumption. All of this can prove very difficult so, in a magnanimous gesture, HMRC has said it is prepared to allow the princely sum of £3 a week, exclusive of costs of business calls. If you want more than the £3 a week, then keep records to show how you calculated the figure.
Expenditure that is NOT allowed
This has to be paid whether or not the premises are used for the employment and, therefore, no part is wholly and exclusively in performance of the duties
As council tax, above, unless the water is metered and it can be shown that the duties of the employment involve increased water usage.
Mortgage interest/endowment insurance
Not allowable. It is not a cost incurred in carrying out the duties of the employment.
Since 2006, the same position as council tax.
Expenditure that IS allowed
Gas and Electric
the additional units consumed while the room is being used for work
Only the metered cost of water used in the performance of the duties
Where a private phone line is used, the unit costs of business telephone calls including pay-for internet access.
Further reading: Self-employed get new allowances