If you are an employee or a business owner working from home HMRC allows you to claim tax relief for the costs incurred. For an employee HMRC have provided a weekly rate which can be paid or which tax relief can be claimed on which came into effect from April 2020 and also applies for the current tax year 2021/22.
Are you an employee?
Employees who work from home either fully or partially are able to claim tax relief on additional household costs incurred on electric, gas, water and phone calls. Only the increase in cost relating to your work can be claimed and not the whole bill and you would have to keep evidence of how you calculated the proportion to claim.
Alternatively you can claim tax relief on £6 per week without providing evidence. This amount was increased from £4 per week from April 2020.
Tax relief cannot be claimed if you choose to work from home.
How to claim tax relief as an employee
If your employer has paid the expenses you have incurred when working from home or has paid you the HMRC rate of £6 per week you cannot claim any tax relief.
If you have not been or only been partially reimbursed for these expenses you need to make a claim through the HMRC Government Gateway. If you do not already have a User ID and password to access your personal account you can set one up. Once set up you will be able to access the online service to enable you to make a claim.
How much will I receive?
If you are a basic rate tax payer and you are claiming tax relief on £6/per week as your employer hasn't reimbursed you, you will receive £1.20/week tax relief. This is most likely to be reimbursed to you through a change of tax code meaning you will pay less tax on your earnings for a period of time until the tax relief is repaid.
Are you a business owner?
If you are a sole trader you can claim some costs for the time you spend working at home. This may be all of your time if your work is solely done at home, or a small amount of time spent working at home perhaps doing quotes, invoicing, ordering, etc.
The rate you can claim and the way you make the claim is different to being an employee.
You can claim for the additional costs incurred in running your home - electric, gas, water, etc - but you will need bills to support the amount you are claiming. Or you can claim a proportion of all your costs including Council Tax, rent, mortgage interest, etc. The proportion would be based on the number of rooms in your house and the number of days you work from home in one of those rooms.
Alternatively you can choose a simplified method and use HMRC set rates which are £10 per month if you work at home between 25 and 50 hours per month, £18 per month if you work at home between 51 and 100 hours per month and £26 per month if you work 101 hours or more from home. Thesye rates do not include telephone or internet and you can calculate the proportion of business and personal use and claim the business element.
How to claim tax relief as a sole trader
Either the HMRC monthly rate or your own calculation will be included as a cost of running your business, along with the other costs you incur such as insurance, advertising, software, etc. You will include the cost of working from home on your self-assessment tax return as one of your business expenses.
How do I receive the tax relief as a sole trader?
The amount of tax you will have to pay is reduced because you will have less profit by including the working from home costs.
Further Information from HMRC
For further information on claiming tax relief as an employee use HMRC's tool to check your eligibility.
For further information on sole trader simplified expenses visit HMRC website.