Date of issue: 27th April 2006

NEW TAX RULES AFFECTS HOMEWORKERS

The tax relief that homeworkers are allowed to claim on sums not reimbursed by their employers have changed and chartered accountants Clement Keys are advising employers and their staff to make sure they update themselves about the revisions.

"HM Revenue and Customs has issued new guidance about expenses staff incur while working at home that are not reimbursed by employers," says personal Tax Partner Shona Cutler.

"Homeworkers must now comply with a set of rules in order for certain household expenses to be claimed as a deduction from their income for tax purposes."

Duties performed at home must be 'substantive duties' of employment, in other words duties that employees are required to carry out and which represent all or at least part of their core duties of employment.

It must also be the case that these duties cannot be performed without the use of appropriate facilities and that these facilities are either unavailable at the employer's premises or the nature of the job is such that the employee has to live so far away from the employer's premises that it is unreasonable to expect him or her to travel to those premises on a daily basis.

Finally, at no time, either before or after a contract of employment is drawn up, should the employee be in a position to choose between working at the employer's premises or elsewhere.

HM Revenue and Customs has also revised its views concerning the type of expenses it will accept as 'wholly and exclusively' incurred in relation to a homeworker's job and those that do not have an 'identifiable part' are not regarded as 'wholly and exclusively'.

As a consequence of this change in practice, council tax and rent have been added to the list of non-deductible expenses.

Mrs Cutler advises employees who work from home to check how they will be affected and ensure that they are only claiming relief for allowable expenses on their tax returns. Claims for relief may be challenged in the future and an incorrect tax return can be expensive in terms of tax, interest and penalties. Surprisingly the amounts that an employer can pay to an employee for reimbursement of home working expenses have not altered so it may be worth speaking to your employer to obtain an allowance for home working rather than relying on a claim for tax relief on the self assessment return.