Working from home expenses & allowance
The coronavirus pandemic has meant that the vast majority of firms have now closed their offices and moved to remote working to help protect the health of their employees. However, even with a return to normalcy, it’s likely that many companies will continue to offer the option for employees to work from home. Recent studies have suggested that it can increase productivity and decrease stress, so it’s a win-win for everyone involved.
It pays to know you’re entitled to claim back expenses for using your home as an office, so you know exactly what you can and can’t claim expenses for.
Here at Travelperk, our workplace management team was quick to respond to the new demands of WFH. They were able to quickly recognize what we could and could not supply and set up expense processes for the cost of purchasing or transporting essentials.Oriol Riera, Chief of Staff at TravelPerk
What are working from home expenses?
Working from home expenses is a bit of a general term, but it is normally applied to costs incurred by employees or the self-employed while performing their jobs from their own home. It is a wide definition and can range from renting home space to your business, to simply invoicing your company for additional call time from your home phone. For employee’s of companies new to remote work, this term is being applied to the equipment and basic services needed for employees to complete their tasks from home:
Normally for employees to work from home, they’re probably going to need:
- A reliable internet connection—either an unlimited business broadband service or a cellular backup based on a mobile router, like a Mifi dongle
- A laptop or computer,—as well as additional hardware such as a laptop riser, an external keyboard and mouse, and a second (or third) monitor
- Specialist software—you’ll need the right tools to carry out your job, in addition to communicating and collaborating with your team
- Appropriate furniture – get your desk set-up feeling comfortable with an ergonomic chair
Some of these, most people will already have or will be very small costs. However, It can all add up! So who’s responsible for these expenses, the employer or the employee?
What work from home expenses can you (or your employees) claim?
Homeworkers should be able to claim any additional costs that are incurred solely for business purposes. This may include computers, office furniture, internet access, or general day-to-day office supplies such as pens, pads and paper clips—all things that are generally provided by the employer and used by the employee when not working remotely.
Since it can vary, you should check with your own country’s tax provisions to find out the specifics for which you’re eligible to claim.
HMRC and working from home expenses
Some companies offer more to their remote workers, some offer less. However, as a bare minimum, HMRC states that your employer can pay you up to £6 a week (£26 a month) to cover your additional costs if you have to work from home. This allowance is free from tax, so you will receive the full sum.
But right now—with many businesses struggling—asking may be bad timing. If your employer won’t pay expenses for your extra costs due to necessary working from home, you can claim tax relief on £6/wk and ask for this amount to be deducted from your taxable income.
It’s possible to claim more if your costs are higher, but it becomes a much more labour intensive process as you’ll need to set up a rental agreement between you (as the homeowner) and your limited company. This will allow you to cover the proportional costs of the rented space. Depending on the proportion of property used for business purposes, you can claim for items such as mortgage payments, utilities and council tax. But when drawing up a rental agreement, you need to bear in mind that the amount of rent charged should be as realistic as possible; it isn’t designed for you to make a profit. It’s also important that the formal agreement is signed by both parties, otherwise, HMRC could classify the rent you receive from your company as additional salary and subject it to Tax and National Insurance.
What working from home expenses do you not have to cover?
You can only claim for things to do with your work, for example, business telephone calls or the extra cost of gas and electricity for your work area. It’s not possible to claim for things that you use for both private and business use – HMRC states that claiming on rent or broadband access is out of the question.
A side note – if you’ve agreed with your employer to work at home voluntarily, or you choose to work at home, you cannot claim tax relief on the bills you have to pay.
How can employees calculate working from home expenses?
Thankfully, you don’t need to keep any receipts to claim the flat-rate tax relief that HMRC offers.
The process to calculate your allowable rental expenses seems a little complicated at first glance, but it’s actually quite simple. You should calculate your monthly outgoings for expenses you’re looking to claim, then divide that by the percentage of rooms being used for business purposes (normally just one room). Here’s an example:
You have 5 rooms in your house, one of them being your office. So, the first step is to calculate ⅕ of the eligible expenses.
Then, since the average working day is 8 hours, let’s say the room is in use for that period of time. The second step is to divide the current amount by 8/24.
Et voila, you have the rental amount that you should include in the agreement.
How can businesses track and collect working from home expenses?
Even with many finance teams operating remotely, there are many digital tools that mean expense management can continue as normal. It could be as simple as using a spreadsheet, or perhaps even specific accounting software or apps. Try to find the best fit for your company.
It may be TravelBank, an all-in-one solution for everything your business needs to manage travel and expenses seamlessly. You can streamline your expense management with their expense tracking software that automates expense reports, offers one-tap approvals, and provides visibility into your business spend. What’s more, it allows your company to process reimbursements submitted through the app in as little as 24 hours, so there’s no more having to float the cost of working from home expenses.
At TravelPerk, we use Expensify to allow our employees to make expense claims. Working from home meant paper receipts were not an option, so it was good that we were already digital-first.Oriol Riera, Chief of Staff at TravelPerk
What home office equipment should you provide?
Chances are the exact equipment that you will need, and whether expenses will cover it, will depend on the nature of your work.
What is the nature of the work
For instance, your employer is more likely to provide you with a second monitor if you’re a designer or programmer, as it’s crucial to your work. Printers and scanners might be provided if you really need them.
If you work in sales or any other position that requires you to make frequent phone calls, you’ll probably be given a mobile phone to carry out your work. Alternatively, your employer might opt to reimburse you for work calls made on your personal phone. Surprisingly, there are important tax implications when it comes to this, so employers should research carefully what is the best option.
Large files and downloads
If you’re working in video production or any other job where you’re constantly downloading large files, it might be an idea to ask your employer to provide an internet stipend.
When is it easier to provide a home office stipend and avoid expenses?
There are some cases when it might be easier for employers to avoid expenses altogether and instead opt to provide a home office stipend. After all, your employer will be saving significant costs by arranging for their employees to work from home. You could negotiate the stipend to cover the cost of the equipment, internet, mobile or home phone, and, if applicable, renting your home office.
Here at TravelPerk, we made the decision to provide staff with a general working from home stipend. We felt this was more time-efficient than asking people to make individual expense claims for recurring things like additional data usage or stationary. Only expenses that exceed the stipend are processed by our Finance team.Oriol Riera, Chief of Staff at TravelPerk