By Howard Ledingham, Personal Tax Manager, Private Client team, Ledinghamh@buzzacott.co.uk
With the UK having just come out of a second wave and a national lockdown, most of the country is still working from home. While this may result in an increase in your household expenses, there is tax relief available for partners and members of LLPs to soften the blow.
Partners and members have two options for how to calculate the available tax relief:
- by taking a proportion of their actual household expenses; or
- using HMRC’s simplified expenses.
Both of these come with their own advantages and disadvantages, depending on your personal situation. It is therefore important to consider how the calculations and risks differ for each individual case.
Proportion of household expenses
Partners and members can take a deduction for their working-from-home expenses by taking a proportion of their household expenses, based on the proportion of their home that they use for business. Examples of the allowable expenses include rent, mortgage interest, electricity, gas, council tax and household repairs.
Individuals must keep a full set of records for all of the expenses they are claiming relief for plus clear and accurate calculations for the business proportion of those expenses, as both of these may be requested by HMRC should they enquire in to the claim.
In addition to the administration burdens, there are two further implications that need to be considered:
- Capital Gains Tax: if you own your home, you may risk losing part of your main residence relief when you come to sell your home should part of your home be used exclusively for business, potentially creating a capital gains tax liability on disposal
- Business rates: for home-based businesses, business rates may be applicable which can significantly increase your home expenses
As the name suggests, the simplified expenses method is the most straightforward way to claim tax relief for the additional expenses incurred from working from home. To calculate the allowable deduction you multiply the flat rate amount, based on the average amount of hours spent working from home by the number of months you spent working from home during the year:
|Hours of business use per month
||Flat rate per month
|25 to 50
|51 to 100
|101 and more
The simplified expenses method also reduces the administration burden; the only records that need to be kept are evidence of the amount of hours the individual spent working from home.
As well as the relief available for the additional household expenses from working from home, partners and members are able to claim a deduction for any capital items they purchase. Examples include computers and laptops, printers, mobile phones, desks and chairs. Similar to the proportion of household expenses computation, the allowable deduction is limited to the business use of the particular item.
It is important to note tax relief for purchased capital items can be claimed under either method for the computation of the household expenses.
How relief is obtained
When a partner or member incurs a business expense personally, relief is obtained through the partnership tax return, not on their personal tax return. A deduction is made in calculating the firm’s taxable profit and this deduction is then allocated to the particular partner to whom the relief is due by reducing their profit share.