Working from home tax relief: energy bills

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Current COVID rules suggest that if you can work from home, then you should continue to do so. And it seems that many of us will continue to do so. But, what does this mean when it comes to energy consumption this winter? What help is available?

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    9 in 10 people will continue working from home even when lockdown restrictions are eased. In summer, this was more than pleasant for many people. From working in the garden in the sunshine to sitting by an open window, summer seemed to lighten the load of restrictions. But now that the chill and grey of winter is here, being stuck indoors may not have the same effect on people.

    Cranking up the heat to stay warm whilst huddled over your keyboard means bearing the cost of an expensive energy bill. Add to this turning the lights on in the middle of the afternoon, and you can see why there are predictions are that it will add £1.47bn to energy bills this winter.

    If you are already dealing with a drop in income or you are on a tight budget, the thought of your energy bill increasing is the stuff of nightmares. The good news is that there is some help available for both self-employed people working from home and employees.

    Heating your home is expensive

    In the last 20 years, the cost of energy in the UK has tripled. The instance of energy debt is also high in the UK, and the thought of working from home and spending yet more of the household budget on heat is placing many employees in a difficult position.

    But energy payments can be used as an expense and used to offset against tax. But what does this mean and is it available to everyone?

    Can you claim tax relief on energy bills?

    HMRC allows the use of a “reasonable method” to claim a proportion of gas and electricity costs in the part of your home that you use for business. Here’s how it works:

    1 Count all the rooms in your home

    Start by counting all the “normal living spaces” in your flat or house. This means excluding the bathrooms and hallway. You may have a separate office, such as a garden studio. If this is the case, you would treat this as a one-roomed house if the bills for these areas were separate from the house. If the energy bills are combined for your home and garden office, you would count it as an additional living space.

    2 Identify the rooms you work in

    You now need to calculate the percentage of time spent in each room as being personal and business. For example, you could spend 10 hours a day in the living room, one hour for business and the remaining nine hours as personal time. That would mean you use the lounge 10% of the time for business and 90% of the time for personal use.

    If you have created a dedicated working space in your home, you can argue that the time spent in this space is 100% of the time for work purposes. That said, you need to be wary of claiming a space as being solely for business use, and this can affect Capital Gains Tax when you sell your home. The way around this is to make the room dual purpose – such as a music room or workshop, as well as your office space.

    3 Divide the cost of energy by the rooms in your home

    There is limited guidance on calculating what is ‘fair and reasonable’. One suggestion is to divide the cost of the energy you pay by the number of living spaces in your home. A five-room house, for example, with a gas bill of £462, will come to a cost of £92 per room. Repeat this calculation for electricity too.

    4 Apply the percentage cost to the room cost

    You have already calculated the amount of time you spend in each room for business purposes and now have electricity and gas costs per room.

    You can now claim this as an expense on your Self Assessment tax return:

    • £92 room cost x 90% time spent in the room for business purposes = £82.80 business expense

    For electricity it may look something like this:

    • £30 electricity room cost x 90% time spent in the room for business purposes = £27 business expense.

    Add these two figures together, and you have saved £109.80 on your energy bill. This method can also be applied for other expenses and costs associated with working from home.

    Can employees working from home this winter save money on energy?

    The UK Government is recognising that for many people, working from home will mean they incur a higher level of expenses than they normally would if they went to work at a physical location, such as an office.

    • Help from the Government for employees working from home – the Government says you can claim relief on some expenses that you incur when working from home. You can check out the latest updated information on the UK Government website. Currently, if you pay a flat tax rate of 20%, you can claim £6 a week tax-free.
    • Your employer may be able to help – employers have been in the fortunate position of being able to make tax-free payments to help employees working from home for all or for most of the time. This relief has been in place since 2003.

    Working from home is here to stay (in the short term at least)

    It can be both liberating and frustrating, but working from home could become the new norm for many people, certainly for this winter at least. But with many employers and employees enjoying the flexibility it offers, it could be the way of working that here’s to stay.

    But it isn’t without its challenges, and one is the additional cost of heating and lighting your home. There is some help available – you just need to make sure you claim it.