Working from home allowance

Hi there. It’s Louise Herrington here from Performance Accountancy, and this episode is all about working from home and the Working From Home Allowance you can get. So, we’re going to be covering employees and self-employment.

So, employees. Well, it might sound a bit oopsie, It might sound a bit new for people, but the ability to work from home for employees has been around for a number of years. And it always used to be you could claim £4.00 a week as an allowance, if your employer required you to work from home. And they paid you the £4.00 a week as part of your salary package, or as enhancement every month for you to work from home. This was to cover your heating, lighting, et cetera. But the point was, the employer had to pay you that £4.00 a week. You couldn’t go ahead and claim it.

So that was the normal method and it still is to a certain point. It has gone up to £6.00 a week. Whoa! Exciting! And things have changed, though, for 2020 and 2021. Now, directors are normally a special breed, but they are also governed by the £4.00 a week or now £6.00 a week. And that’s all they should be claiming. However, what we do tend to find is directors of limited companies do spend rather longer hours working from home so, therefore, feel entitled to have more money. And so a reasonable proportion might be put in for that, rather than the four, £6.00 a week.

That is up to the directors to put that through the company. And whether they can justify it is another matter. So it really should be a small amount that goes through, not several thousand pounds. Though, I personally would stick to the £6.00 a week, if you can. Or, if you can justify a slight increase at a slight increase. But it’s not the same as being self-employed. Okay?

So for 2020-21 and 2021-22, you will have probably all heard Martin Lewis state that there was this allowance that came in. And if your employer required you to work from home, even if it’s just one day in the tax year, you could claim this Working From Home Allowance, which comes in at £6.00 a week and you could claim it for all 52 weeks. Even if you were on furlough, off furlough back working, semi-furlough or flexi-furlough, et cetera, it doesn’t matter, so long as it was required by the company and you had at least one day working from home. So that £312 is quite a woo-hoo! Quite good lift for you. You can claim it via an online portal. Just Google Working From Home Allowance with the, or if you have to do a tax return, then you can only do it via the Employment section of your tax return.

Now, one question that has come up, and I personally have not managed to get to the bottom of it yet … If I have, I’ll put a little sticker over this bit. When Martin Lewis did actually break this in his show, he did say it was per employer. But I haven’t actually managed to find anything in the legislation is per employer. And as we know, with the music industry, music teachers, you might work as a peri teacher for several schools, and several schools have you on their PAYE system. So can you claim £312 pounds for one school, £312 pounds for the second school, £312 pounds for the third school?

If so, this is a triple woo-hoo, because it does mean you could get quite a bit of Working From Home Allowance. Advice I’ve been given so far is, yes it is, but I haven’t managed to get that out of HMRC yet. They’ve been very quiet on it. So, I would talk to your other tax advisors, if you have any. Or have a think about whether you want to claim it per employer. I’m putting through per employer, and I’m quite sure if each HMRC then recalculated the tax return and took it out, people would understand that we just weren’t sure and we’d give them a health warning that this might come back and bite them. But again, if I do find anything else, I will put an addendum to this video.

Okay, the self-employed is something different. Well, we have to be special, the self-employed people. So if we move on to self-employment, there are two methods. So, there is a simplified method and there is an actual cost method. But what do we call working from home? Well, it could be anything to do with your self-employed business. For a musician, it could be practise. It could be maintaining your instrument. Could be rehearsing if you’re an actor. Line learning, music learning. If you are also a music teacher, you could be set up with a music room at home, where you teach out of, or you might be teaching online. Doing your admin. Yeah, it takes a while I know, and that it can be a pain in the pain. But it still takes time, it’s still you’re working on your business. So, marketing, admin, accounts, research into schools and roles and music that you might want to think about performing, et cetera. It’s all part to do with your business.

And finally, if you’re doing any training courses, so you’re attending conferences online, then that would be an allowable course. If you’d be taking some qualifications … Well, not official qualifications, that’s a different story. But if you’re just upgrading your skills to making sure you’re keeping in contact, keeping in touch, you know what you’re doing, then all that would be allowable time spent at home working on your business.

I did accidentally touch on training. If you are doing a recognised qualification like an MBA or a PhD, those costs are not allowable against your self-employed business. So the cost of the fees, the travel to get to the course, any books, et cetera, to do with that official training is not allowable. There is another completely separate video all about training. So I suggest you go and look for that.

So there are two methods on how to do this. The first is simplified expenses, and this is based on the number of hours you work from home on your business. Now, it doesn’t seem a lot. If you work less than 25 hours a month, you cannot get anything for your heat, light, et cetera. If you work more than a 101 hours a month, you can get £26 a month. Now, that does seem a bit [inaudible 00:07:38] Okay? Not a lot, but the reason it’s simple is, because it’s simple. You just have to keep a log of how many hours you work each month, and then work out what you’re entitled to according to this table.

And, there again, is the complicated method. So the actual cost calculation. Well, you need to start collecting a lot of figures. So again, you need to start collecting the time spent working on your business from home. You can do this on an average week, an average month, or actually keep a log per year. If you’re like me, you probably lose that log. After the first couple of months, you probably can’t find it.

So it’s about keeping a log and you work out the number of hours you’ve worked from home in the year. You then divide it by the number of hours available to work from home a year, which to save you working out is 8,760. The reason it’s this is because the room in your house is available 24/seven. It’s not as if you only have it nine to five and that’s it. It’s available all the time. So, therefore, you divide by 8,760. So you’ve got your business working hours and you’ve got your total hours in the year. One divided by the other, gives you a percentage you can apply for your actual running costs. Put that to one side for the moment.

Now, you need to work out the actual costs of running your home. Okay? So that would be your electricity, your gas, your oil, other types or form of heating and generating power into your home. It does not include water. Well, not unless you’re a hairdresser working from home. Then you probably could include it. Your Council Tax, mortgage interest, rent, cleaning, insurance, anything like that, the cost of running the house. You add it all up and you get to a total for the year.

Now, if there’s two of you, so there’s you and a partner, husband, wife, spouse, et cetera, then you put through your total costs of the house, which will be both of you. Then divide it by two if there’s two adults in there, because that’s going to be the cost per adult. Okay? Then you work out the number of rooms you have, and this will exclude kitchen and bathroom. Okay? So it’d be the number of reception rooms you have, the number of bedrooms, et cetera, that run off of all this type of expenses. So total cost divided by, let’s say, two of you, because there’s a husband and a wife. Divide it by, in this case, [inaudible 00:10:38] the below seven, and that gives you the cost per room. All right?

So the cost per room … Then you go back to the log of time you had, and the percentage you applied, and you’ll apply that percentage to the cost of one room. And that will give you your Working From Home Allowance. Now, some people say to me, “Oh, but I use several rooms in the house.” Well, okay, that’s fine. So if you wanted to do it based on several rooms, you would then look at still the cost per room. But then you’d have to work at how many hours you used each room. So do you use one room for teaching in, one room for doing your own office admin? You’d add them, and then you’d work out the hours per those rooms, and then you’d do exactly the same calculation. The number of hours, divided by 8,760. Then multiply by the cost of one room. Okay? So it gets a bit more complicated. You might as well just add up the total number of hours the house is used for, and a room is used for, and work it out for a single room.

Some people go a bit more complicated and they work it out on square footage instead of the number of rooms. That’s fine if you’ve got drawings and house plans, so you know exactly the square footage on the little tiny place that the piano takes up and the desk takes up, et cetera. But that’s just over-complicating things and I wouldn’t bother.

So, log of time spent in your home, divided by the total number of hours available within the year, the cost of running the house for you only. So therefore you’ve divide it by the number of adults, and then the cost per room. Multiply the two together and that gives you your Working From Home Allowance. And now you can see why a lot of people just go for the simplified expenses.

So you’ll see a table before. That gives you an example of how it can be worked out.

Never, ever say a room is dedicated to your business, especially if you’ve got a mortgage. A, because it opens you up to issues with the mortgage company. B, there might be business rates to spend on that room. And C, it’ll open you up to capital gains tax when you sell the property, because it wasn’t 100% private residents. But a proportion of one room for your business, doesn’t give rise to those type of issues. So, always make sure it is only a portion of the room you’re using and the room is used for other purposes as well.

So there you go. So that’s where we are with your Working From Home Allowance. I know you’re bound to have questions, so by all means please drop me a line. I don’t know if the fax number still works. Thanks, then. Bye


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