Working from Home Tax Relief Explained

The way we work has transformed significantly over the past few years, with remote work becoming the new norm for many. When you run your own limited company or operate as a sole trader, using a home office becomes a common practice. As a UK contractor, limited company owner, or small business owner, you might work from home occasionally or even regularly, due to which, your expenses often increase due to the extra use of electricity and the internet. 

Understanding the tax relief for home workers is crucial. If you work from home, you may be able to claim certain expenses and reduce your tax bill. This could save you money and make your home working setup even more beneficial. However, the government has updated the criteria for the 2024/25 tax year.

In this guide, we will explain everything you need to know about working from home tax relief and how to make the most of the tax relief available to you as a remote home worker. Whether you're new to working from home or have been doing it for years, this guide will help you understand the tax implications and keep more of your hard-earned money in your pocket.

Working from home tax relief allows self-employed individuals and contractors to claim back some of the expenses they incur wholly for the business use while working remotely. These expenses include costs for:

• Heating
• Electricity
• Business phone calls
• Gas 
• Water
• Broadband
• Office supplies
• Business equipment repairs
• Cleaning

Essentially, tax relief helps to reduce the amount of tax you owe, giving you some financial relief for the extra costs you bear while working from home.

For self-employed individuals, you can claim a portion of your home expenses, such as utilities, mortgage interest, and even rent, based on the space and time you use for work.

Limited company owners can also benefit by having their company reimburse them for home office expenses, ensuring these are deducted from the company's taxable profits.

Contractors operating through a limited company or as self-employed can take advantage of similar reliefs, ensuring that the costs of working from home do not impact their personal finances negatively.

Let’s understand why it is important to claim tax relief:

1. Maximising Take-Home Pay: Claiming tax relief allows you to deduct a portion of your home expenses from your income tax, which can increase your take-home pay. This means you keep more of what you earn.
2. Covered Costs: You can claim back costs such as heating, electricity, internet, and rent or mortgage interest. These are necessary expenses for running your business from home, and tax relief ensures you're not bearing these costs alone.
3. Increased Disposable Income: By reducing the amount of tax you owe, tax relief increases your disposable income. This extra cash can be reinvested into your business or used to cover other essential expenses.
4. Legal Entitlement: Tax relief for home workers is a legal entitlement. By claiming it, you ensure you're taking full advantage of the benefits available to you under the law.

Benefits of Claiming WFH Tax Rebate

1. Reduced Financial Burden: Tax relief can significantly reduce the financial burden of increased home expenses and helps manage your household budget.
2. Savings on Essential Costs: By claiming relief on specific work-related expenses, you can save money on essential costs. 
3. Investment in Growth: The money saved through tax relief can be reinvested into your business. Whether it’s upgrading equipment, marketing, or professional development, these investments can help grow your business.

Simplified Tax Filing: The availability of a standard allowance, like the £6 per week flat rate, simplifies the process of claiming tax relief. This makes it easier for self-employed individuals to file their tax returns accurately and efficiently.

If you run a limited company, you can claim home office expenses as part of your business costs. HMRC refers to this as the "use of home office allowance. For limited company owners, you can claim tax relief for working from home through your business. If you are self-employed, you can claim this relief on your tax return. If you are an employee whose employer does not reimburse you for working from home, you can still claim the use of home tax allowance on your tax return.

Here are key points to remember when claiming for using your home as an office:

• If you are self-employed, you will save on basic or higher rate tax and national insurance.
• If you are claiming for home office use as a limited company, the cost will save Corporation Tax.

Who can Claim Working from Home Tax Relief 

You can claim tax relief for working from home if you meet certain conditions set by HMRC. Specifically, you qualify if you have to work from home because:

• Your work requires you to live far away from your office.
• You or your employer doesn’t have a business office.
• Your employer has not already paid your expenses and you have additional household costs as a result of working from home
• Your employer's premises do not have the necessary facilities for you to do your job.
• Your job requires you to travel an unreasonable distance to and from your employer's premises every day.
• Government restrictions require you to work from home.

Example Scenario: John’s employer does not have an office, so he must work from home to perform his duties. He incurs additional broadband costs to handle his work responsibilities. Since there is no office provided by his employer, John is eligible to claim tax relief.

Who Cannot Claim Tax Relief

You cannot claim tax relief if you choose to work from home under the following circumstances:

• Your employment contract allows you to work from home some or all of the time, but it is not a requirement.
• You work from home due to the coronavirus (COVID-19) pandemic.
• Your employer has an office, but you cannot go there sometimes because it’s full.

Example Scenario: Emily’s contract allows her to work from home two days a week. She incurs additional heating costs on those days. Because Emily chooses to work from home and it is not a requirement, she does not qualify for working from home tax relief.

Ways to Calculate Your Working from Home Expenses

1. HMRC's Guideline Allowance

• Without any need for justification, you can claim £6 per week for the use of your home for business purposes. This allowance applies from 6 April 2020 onwards.
• This flat rate is straightforward and requires no evidence of additional costs, making it easy to claim. Over a year, this adds up to just over £300, which is designed to cover basic administrative tasks completed from home.

2. Usage Calculation for Higher Claims

• If you work from home extensively, you might incur higher costs than the HMRC’s flat rate covers. In such cases, you can claim more by providing evidence like receipts, bills, or contracts.
• To calculate the exact amount of extra costs incurred above the weekly flat rate, use the following formula:

(B + (D% x C) / A) x E

Where:

• A = Total number of rooms in your home.
• B = Number of rooms dedicated solely to business use.
• C = Number of rooms used partly for business and partly for personal use.
• D = Percentage of time the rooms are used for business compared to personal use.
• E = Total home expenditures (e.g., water and sewerage, heating, lighting).

Example Calculation

Let’s say you have a home with 5 rooms. You use 1 room exclusively for business and another room for both business and personal use, with business use occupying 50% of the time. Your total home expenditures, including water, heating, lighting, internet, amount to £2,000 for the year.

Using the formula: 

A (Total number of rooms in your home) = 5

B (Number of rooms dedicated solely to business use) = 1

C (Number of rooms used partly for business and partly for personal use) = 1

D (Percentage of time the rooms are used for business compared to personal use) = 50%

E (Total home expenditures) = £2,000

(1 + ((50% + 1) / 5)) X £2,000 = £2,200

In this example, you can claim £2,200 for using your home for business purposes, provided you have the necessary evidence to support your claim.

Types of Expenses That Can Be Included (E)

• Water rates
• Light and heating costs
• Telephone line rental, internet, and cost of calls
• Business equipment repairs
• Cleaning services

3. HRMC’s Simplified Expenses:
You can use HMRC’s simplified expenses option to claim a working from home tax rebate if you meet the following criteria:

• You are self-employed.
• You work from home for at least 25 hours a month.

You can calculate your allowable expenses using a flat rate based on the hours you work from home each month. This method simplifies the process by eliminating the need to separate personal and business use of your home expenses

These rates apply specifically to self-employed individuals and not to limited company directors. You can claim the following rates based on your monthly work hours.

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Tax Relief Based on Your Tax Rate 

You’ll receive tax relief based on the rate at which you pay tax. For example, if you are a basic rate taxpayer (20%), you will save 20% of your allowable expenses.

Calculating your working from home tax relief has never been easier. Use our Working from Home Tax Relief Calculator below to quickly and accurately determine the amount of tax relief you can claim. This tool simplifies the process, helping you maximise your claim without the hassle of manual calculations. 

1. Claiming Online: Go to the government website to claim tax relief for your job expenses, answer work related questions, login using your Government gateway ID (Create one if you don’t have one), enter the start date and claim.
2. Claiming Through Self-Assessment: If your expenses are more than £2,500 in some of the tax years you are claiming for, you must claim them as part of a Self Assessment tax return.

How is working from home tax relief paid?

‍1. Tax Rebate for Previous Tax Years

‍If you are eligible for a working from home tax rebate for previous tax years, HMRC will typically issue a cheque for the amount owed. This is a straightforward process where HMRC refunds the excess tax you have paid in prior years due to your working from home expenses.

‍2. Tax Relief for the 2024/25 Tax Year

‍If you are eligible for working from home tax relief for the current tax year, HMRC will adjust your tax code. This adjustment means you will pay less tax on your wages, as the relief is factored into your tax code.

Claim Your Work from Home Tax Relief Today!

Working from home tax relief is a valuable benefit that can help offset the extra costs incurred when working from home. If you are eligible, don’t miss out on claiming this tax relief. 

If you’re unsure on how to claim, eligibility criteria or what expenses you can claim, consult with our contractor accountants today! Start maximising your working from home tax relief today to take full advantage of the benefits available to you!

FAQs on Working from Home Tax Relief:

Can I claim tax relief for the previous years?

Yes, you can claim working from home tax relief for the 2024/25 tax year and the previous four tax years.

What is the deadline to apply for WFH tax relief?

HMRC confirms that you have until April 5, 2025, to make claims for the 2020/21 tax year and until April 5, 2026, to make claims for the 2021/22 tax year.

Does my tax code change if I work from home?

Yes, if you receive the work from home tax rebate, your tax code will change.

How much can I claim for working from home?

HMRC offers a flat rate of £6 per week for working from home without needing to provide evidence of your expenses. If your actual costs are higher, you can calculate and claim the exact amount, but you will need to keep records like receipts and bills.

Can I claim tax relief if my employer reimburses me for my expenses?

No, you cannot claim additional tax relief for the same expenses if your employer reimburses you.