Working from home allowance on bills

stphnstevey

I have been an employee and now moved to owning a Ltd and Director. I am filling out my tax return for when I was only an employee. I have previously claimed for a proportion of gas, electric and water. But as a company I have read that I could claim for rent/mortgage, council tax and home insurance as well. Can I also claim these additional bills as a normal employee working from home? Thanks

Pennywise

There is no difference between the scenarios. You are now an employee of your own limited company whereas previously you were an employee of someone else's.

However, you aren't right in thinking you can claim for the things you suggest in either scenario.

HMRC employment income manual - what you can claim:-

http://www.hmrc.gov.uk/manuals/eimanual/EIM32815.htm

HMRC employment income manual - what you can't claim:-

http://www.hmrc.gov.uk/manuals/eimanual/EIM32820.htm

You can't claim rent/mortgage, council tax or insurance as an employee, either as your own ltd co or another employer.

Nor can you claim a "proportion" of gas, electric and water.

The only thing you can claim is the "additional" costs you incur because you are working from home. HMRC allow a claim of £3 per week (from 6/4/08) to save you from having to keep accurate records showing how much "extra" it costs you to work from home.

trevormax

You can of course use company owned assets and the company can pay for certain things for you (being the director, you make the decisions). Doing this will be seen by HMRC as a benefit in kind from your employer (you). Your tax free allowance will be reduced by an amount depending on many factors such as the benefit, the cost incurred by the company, how long you use it etc etc.

stphnstevey

Pennywise wrote: »

There is no difference between the scenarios. You are now an employee of your own limited company whereas previously you were an employee of someone else's.

However, you aren't right in thinking you can claim for the things you suggest in either scenario.

HMRC employment income manual - what you can claim:-

http://www.hmrc.gov.uk/manuals/eimanual/EIM32815.htm

HMRC employment income manual - what you can't claim:-

http://www.hmrc.gov.uk/manuals/eimanual/EIM32820.htm

You can't claim rent/mortgage, council tax or insurance as an employee, either as your own ltd co or another employer.

Nor can you claim a "proportion" of gas, electric and water.

The only thing you can claim is the "additional" costs you incur because you are working from home. HMRC allow a claim of £3 per week (from 6/4/08) to save you from having to keep accurate records showing how much "extra" it costs you to work from home.

Thanks Pennywise, I do respect your comments, but I just want to check something.

If I understand you correctly, your saying you CAN'T claim a proportion of gas, electric and water and only £3 a week. However it states 'Employees who wish to deduct more than £3 per week will be expected to keep records and to be able to show how their figure has been calculated' (ie you can claim a proportion if you show your calculation)

Additionally, this manual seems to contradict things
http://www.hmrc.gov.uk/manuals/eimanual/EIM32760.htm

With examples of how to calculate things here
http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm

However these two manuals do say that you can claim rent/mortgage, council tax etc

I am confused?

mary

I've been self employed for about 6 years. I have some property I let but my other work is making teleappointments for a rep for a publisher, getting him into schools. In the last 2 years I'm also doing telephone surveys to businesses. In both scenarios my telephone bills are paid. However the room I use, I have to use the internet, bit of heating,, lighting etc., so reading the links you posted it would appear I could be entitled to the £3 per week. Do you have any such experience? Do you just ring the Tax Office - I've already done my SA return for this year and sent it off and have it settled.

stphnstevey

I think your safe in claiming £3 a week - my question below is can you claim more (ie the actual proportion used and which bills).

I have claimed a proportion of bills (electric, gas and water) for the past couple of years or so with no problems. Before I was on SA I used what I think was a P87 form. I now add it to expenses not payed/reclaimed (I think that's what it's called) under my employer on the SA. Not sure what you would do for self employed though?

Think you can claim back for a few years (not sure exact number) if you've missed claiming in past years.

Just waiting for Pennywise to add their wisdom!

Pennywise

The "business income" manual does allow a claim for rent/mortgage interest and other things. But that's for businesses, i.e. sole traders and partnerships.

As an employee, you have to completely ignore the business income manual - it is the employment income manual that applies which is what I gave the links for.

Sounds strange, but that's the way it is. There are many other differences between taxation for an employee and taxation for self employed, so this is just another one.

Re "proportion", I said you can't do that because I assumed you were just going to claim "say 10%" - that's what I understand by the word proportion. What you have to claim is the extra cost to you - that means coming up with a valid computation as to how you worked it out. The most normal method usually accepted by the tax inspector is to look at the power units used in the year prior to starting working at home and comparing it to the power units used for the first year of working at home. Then you have a fair approximation of the extra units used and can make the claim accordingly. I've had many tax enquiries where the tax inspector has automatically disallowed random percentages without some proper back up as to how they were arrived at.

stphnstevey

Thanks Pennywise

I have seen several different ways of working out the 'proportion'.
a) Divide by number of habital rooms (not kitchens, bathrooms or hallways) if one room is used specifically for home working
b) Divide by square meter usage

I guess they will be happy as long as you can justify your claim

It's strange that as you pointed out, a director is an employee just as much as a normal employee. Yet the business manual seems to suggest that more bills can be claimed.

Is that because the business manual refers to a company claiming the home working expenses off the companies Gross Profit, rather than an employee claiming it off their tax return?

mary

Found this link to the BBC regarding Self Employed working from home
http://news.bbc.co.uk/1/hi/programmes/working_lunch/7459639.stm
It makes reference to Gordon the architect working from home, which
does seem a very similar set of circumstances to myself.

The article was written in June, but it does sound as though circumstances
have changed and improved for the SE this year then for claiming such allowances.

stphnstevey

Funnily enough the link in that article to the examples is the link that I gave below

Pennywise

stphnstevey wrote: »

It's strange that as you pointed out, a director is an employee just as much as a normal employee. Yet the business manual seems to suggest that more bills can be claimed.

Is that because the business manual refers to a company claiming the home working expenses off the companies Gross Profit, rather than an employee claiming it off their tax return?

You are falling into the classic trap of not fully appreciating the "veil of incorporation" - i.e. the fact that the limited company and the director/shareholder are different legal entities.

As a director/shareholder you're not in business. YOU are an employee. Your limited company (a separate legal entity) is the business. You have to learn to appreciate the difference.

Here we are talking about the amount you personally can claim from your limited company free of tax. That's where the rules come in. Pay £3 per week or a higher amount you can justify and you personally don't pay any tax on it. You can personally claim a much higher amount, and the company can pay that back to you, but it won't be tax free in your personal hands. The company will get tax relief on the payment - as that is a business - but you personally have to pay tax on the excess over the £3 per week.

Don't try to think too deeply about whether it is fair or not. That's the short cut to the asylum when dealing with tax. There is very little logic or common sense. With tax, you have to work within the rules, whether they make sense or not. As an employee/director, you can't claim rent or mortgage interest without it being taxable on you - you need consider no deeper than that.