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Markel Tax

30 Apr 2020

Tax Teaser - Recovering VAT on Work from Home Expenses

I am working at home and my bills have gone up, is there anything I can do?

Yes, businesses can recover VAT on the additional expenses incurred when working from home. 

Recovery of VAT can apply where the owner of the business is working from home or where the business is receiving expenses claims from its employees. In both instances, the business should ensure it obtains copies of the relevant invoices and applies an appropriate method of apportionment to distinguish between private use and the use for business purposes. 

This can be done with most types of expenditure, such as increased telephone bills, utilities bills, additional computer equipment/software, and so on. However, this principle does not apply to motor cars, although for many that will not be relevant during the Covid-19 lockdown.

Payments made by employers to reimburse employees for reasonable additional household expenses incurred in carrying out the duties of the employment at home may be tax exempt. Employers may pay up to £6 per week tax-free from 6 April 2020 (£4 per week up to 5 April 2020) without requiring supporting evidence of the cost or agree to pay greater amounts where the employee provides evidence to justify the additional expenses.

Additionally, employees may be able claim a deduction against earnings on the difference between the cost of additional household expenses arising from working from home and the tax-free payment (if any) received from the employer contributing to these costs.

For the self-employed, expenses are deductible against self-employed earnings where they are incurred wholly and exclusively for the purposes of the trade. Where an expense has both a business and a non-business element, it may be possible to apportion the expense with the non-business element of the expense being disallowed. Typical expenditure that may be allowable when working from home is listed in HMRC’s guidance here.

Alternatively, the self-employed may make a flat rate deduction of between £10 and £26 per month, depending on the hours worked from home. This only applies to individuals who work at home for 25 hours or more in a month and in respect of certain expenses.

As for domestic accommodation expenditure including repair and maintenance, while VAT is not normally recoverable, if a sole trader, a partner in partnership or a director of a limited company has a designated area of their home which they use exclusively as their office, VAT incurred on the expenditure relating exclusively to that area could be recoverable. Similarly, if a business provides domestic accommodation for its employees, the business can treat any VAT incurred as fully deductible input tax (in accordance with the usual recovery rules).

This can be a helpful way of boosting cash flow and profits for a business, both during Covid-19 lockdown and perhaps afterwards too if working from home becomes more prevalent.

Kevin Hall
Imran Umarji

Tagged HMRC Value added tax (VAT) services Tax for entrepreneurs and corporates Value added tax (VAT) services Tax Investigations COVID-19
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