Recover VAT on Working From Home Costs
Many of us have been working from home for the last few months thanks to coronavirus and let’s face it, a lot of us will be doing it for quite a while longer. Indeed, some businesses have embraced this option and it looks like being an ongoing feature of work going forward.
One of the side effects of this long period of working from home is an increase in our domestic bills. A lot of business owners haven’t thought of this, but it is possible to make savings in your costs, both for yourself and any employees you may have working from their own homes.
One way is to recover VAT. This can apply both to the business owner working from home and expenses you may receive from staff. There are a few costs that this can be applied to:
- telephone bills
- gas and electricity
- provision of a new broadband connection
- any additional software or equipment (computers, paper) required that are being used solely for business purposes.
In order to claim this VAT back, the business must retain copies of invoices and receipts. That’s easy enough, the slightly more complicated part is to devise a method to calculate the proportion of use for business as opposed to domestic purposes.
VAT on an employee’s expenses can also be recovered providing the employee is forced to work from home because of COVID-19 and not “choosing” to. When a business or employer reimburses the employee for these expenses, that payment may be tax exempt. Since April 6th, 2020, an employer can pay an employee £26 per month (tax-free) for expenses related to working from home without any corroborating evidence. Larger amounts must be supported with evidence of the spend such as receipts, invoices, or bills. Your employees may also be able to claim deductions against their earnings on the difference between the expenses they incurred by working from home and the tax-free contribution they received from the employer.
If you are a self-employed person, expenses incurred wholly and exclusively by your trade are deducted against your earnings. Where you have expenses that have a personal use as well, you will need a method to calculate the proportion applicable to your business use and it may then be possible to claim against the expense.
In the same way that a business can make a monthly payment to employees, if you are self-employed and work from home at least 25 hours per month, you can chose to make a monthly deduction of between £10 and £26 (based on the hours working from home). This flat rate does not include use of your telephone or internet, so you can still claim the business proportion of these expenses.
Dedicated Home Office
We’ve been asked if repairs to your home are applicable while you are working there and while this would not usually apply to VAT, there are some options. If you have an area of your home that is dedicated to your work then this can be viewed as your office, so VAT on spending on that area could be recovered. This applies if you are a sole trader, a director of a limited company or if you are a partner in a partnership and it also applies to VAT on costs the business has incurred in similar set ups for your employees.
Of course, if you are not registered for VAT, you can claim the gross amount against your income in similar ways to the situations outlined above.
At all times, ask yourself are these genuine business expenses and can you prove that if asked to. This can all be a little bit confusing, so if you are in any doubt, just give us a call on 020 8819 8762 or email us, and we will walk you through how it applies to your situation.