Working from Home - Tax Benifits

As an employee rather than self-employed, the benefits are currently small.
More over you should consider a defensive position to ensure your liability doesnt increase.

- Insurance

Given that most burglaries are committed during the day, you'd think that insurers would be delighted to hear that you will be working from home.
Not so: some insurance companies will effectively penalise you by excluding your own work-related equipment from household contents cover.
In any case, you need to inform your insurer of what you are doing.

If you are an employee, your employer should take responsibility for insuring their own equipment. But best check first.

- Business rates

If you have an area of your home dedicated exclusively to work, you could potentially face a liability for business rates, on top of your ordinary council tax bill. The government says that where business use is subsidiary to domestic use, rates will probably not be levied. In practice, you'd be unlucky to find yourself under the scrutiny of the valuation officer, and rather foolish to voluntarily raise the question yourself.

- Capital Gains tax

Whilst any gains in the value of the home where you live are normally exempt from capital gains tax, the situation changes if you use part of your home exclusively for work purposes. In this case, gains will be apportioned according to the proportion of business to home use. The annual CGT exemption threshold (currently £7,100) makes this an issue only for the lucky few.

If you do decide to apportion some of your housing costs as work expenses, you may run a greater risk of being levied for business rates.

- Travel expenses

Normally as an employee you can't set against tax the cost of travelling between your home and the place where you work. Where your home becomes your workplace, the situation can change. The Revenue distinguishes between people who work from home because it is convenient (no tax perks here) and those where 'there is an objective requirement of an employee's duties to carry out substantial duties at the home address'. In the latter case, the cost of journeys to other workplaces is eligible for tax relief. But this is a complicated area of tax; IR booklet 490 gives full details.

- Home expenses

Working at home costs money: direct expenses such as telephone charges, less immediately obvious items such as extra heating and lighting expenses, and long-term capital costs which come from the fact that carpets and furniture wear out quicker. There is also what economists describe as an opportunity cost, in that the space you are using at home for work can no longer be used for other purposes.

It's sensible to install a separate work telephone line for home working, and most employers automatically meet this cost for their employees. Some, but by no means all, employers also contribute towards the other costs incurred, typically through a regular lump-sum payment. However, this sort of payment can be taxable as a perk, if it cannot be justified as legitimate. The test for what expenses can be reimbursed is a tough one for employees: expenses must be incurred 'wholly, exclusively and necessarily' for work purposes. Sensible employers negotiate any home expense payments with their tax office first.

For the self-employed, the test is less rigorous. Expenses incurred 'wholly and exclusively' for work can be set against tax. Items such as electricity and gas bills can be apportioned between home and work use; this is an area where an accountant can give useful advice.

- Mortgages and landlords

According to the Council of Mortgage Lenders, you should let your mortgage company know that you are working from home. In practice, most people fail to do so, perhaps concerned that their mortgage will rapidly be changed to a higher-rate commercial loan. The CML says that, whilst conceivable, this is unlikely.

The TCA has reported a few cases where assiduous lenders have not allowed home-working borrowers to get tax relief automatically through the Miras scheme, requiring them to obtain tax relief from their tax office instead. This problem will disappear next year, when mortgage tax relief is abolished.

If you are renting accommodation, your landlord may expect to know about, and approve, your plans for working from home.