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Maximizing Your Savings: A Guide to Work-From-Home Tax Relief for UK Small Businesses

Updated: Apr 23

In the wake of the global shift towards remote work, many UK small businesses and their employees have embraced the flexibility and challenges of working from home. With this new normal, understanding how to navigate work-from-home tax relief has become crucial for optimizing your financial health. This comprehensive guide is designed to help small UK businesses and their accounting partners, like you, make the most of tax relief opportunities available for remote work arrangements.

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Maximizing Your Savings: A Guide to Work-From-Home Tax Relief for UK Small Businesses

Simplified Expenses for the Self-Employed

Simplified expenses are a method introduced by HMRC to ease the accounting process for self-employed individuals. This option allows you to calculate your business expenses using flat rates instead of working out your actual business costs. This is particularly beneficial when it comes to expenses like working from home, living at your business premises, and using your car for business.

Who Can Use Simplified Expenses?

This scheme is exclusively available to sole traders and business partnerships that do not involve a company or a limited liability partnership. Simplified expenses cannot be used by those who are employed and receive a salary from an employer.

How Does It Work for Home Workers?

For those working from home, the flat rate is based on the number of hours you work from home each month. To use this method, you must work at least 25 hours per month from home. The rates are as follows:

  • 25 to 50 hours a month: £10 per month

  • 51 to 100 hours a month: £18 per month

  • 101 or more hours a month: £26 per month

These rates are designed to cover your additional household expenses like heating, electricity, and the like. It's important to note that these rates do not include telephone or internet expenses; these business costs will need to be calculated separately.

Claiming Tax Relief for Employees

If you're an employee who works from home, you may be eligible for tax relief on some of the bills you have to pay because you need to work at home on a regular basis.

Who Can Claim This Relief?

This relief is specifically for employees. If you are required to work from home on a regular basis, either for all or part of the week, this includes situations where you have agreed to work from home voluntarily as well as situations where your employer requires it.

How Does It Work?

The tax relief can be claimed on the additional costs you incur, such as heating and electricity, required for your work. You cannot claim for costs that would stay the same whether you were working at home or in an office, like rent or internet bills.

The flat rate you can claim without needing to provide evidence of your costs is £6 a week. If your extra costs are above this amount, you can claim more, but you'll need evidence such as receipts, bills, or contracts.

Knowing Which to Apply

  1. Employment Status: First, identify if you are self-employed or working as an employee. If you're self-employed, simplified expenses are your route; if you're an employee, look at claiming tax relief for employees.

  2. Regular Home Working: Both methods require that you work from home regularly. However, simplified expenses require a minimum of 25 hours per month, whereas employee tax relief does not specify a minimum number of hours, only that it needs to be a regular arrangement.

  3. Record Keeping: Simplified expenses might be easier to manage as it doesn't require detailed record-keeping of all expenses—just the hours worked. For employees claiming more than the flat rate, detailed records and evidence of additional costs are necessary.

  4. Claiming Process: Self-employed individuals use the Simplified Expenses as part of their Self Assessment tax return. Employees need to claim their expenses through their payroll or a self-assessment if they are already required to file one.

Understanding these differences and criteria will help you determine which tax relief method best suits your working arrangement and maximizes your potential benefits. Whether you're self-employed or an employee, taking advantage of these tax relief options can significantly reduce your tax liability and support your working lifestyle. Always ensure to stay updated with the latest HMRC guidelines or consult a tax professional for personalized advice.

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