Solopreneurs, don’t get prosecuted for wrongly claiming Work From Home aid

Following a tax relief rules change this month, entrepreneurs now risk being prosecuted if they incorrectly claim government support for help with their gas, electricity, water, broadband, and phone bills, while working from home, writes Lauren Harvey, assistant accounts manager at The Accountancy Partnership.

The times (and tax relief rules) are a-changing

The tax break, introduced in April 2020 to support those who had to work from home for some or all the week due to covid-19, granted a 20% tax cut for anyone working from home on up to £6 per week (or more if they submit proof of expenses with the relevant receipts, bills or contracts).

Government guidance has now changed for those working from home and as a result, it has also withdrawn the financial support offered to many home-based workers.

Three exceptions. Do they apply to you?

There are still some exceptions which may allow for relief:

if there aren’t appropriate facilities to perform a job on the business’s premises,

if it is unreasonably far to travel to the premises each day, or

if government restrictions require continued remote-working.

The prosecution risk is real

Otherwise, anyone who didn’t apply for the tax break, which could be worth up to £300, before April 5th 2022 now no longer qualifies to receive it. And trying to do so could risk prosecution.

This could put many freelancers working from home in a difficult financial position as inflation and the cost of business continues to rise. Such solopreneurs are likely to be facing a hike in utility bills and other expenses associated with running a business, and the withdrawal of this support or being penalised for an incorrect claim could put some people out of business altogether. With this in mind, business owners and employers must clarify their eligibility before submitting a potentially invalid claim.

But consider -- although the covid work-from-home tax relief is ending, there are other ways freelancers can claim expenses for ‘use of a home’ as an office.

Our firm’s research has found that premises costs are in the top five expenses least likely to be claimed by small business owners, so there are potentially serious tax breaks being missed here.

HMRC’s flat rates when working from home

The simplest way of claiming this – if you work from home -- is the HMRC ‘flat rate’ allowances method, known as simplified expenses. This permits sole traders to claim back a set amount based on how many hours of work are done from home each month. Rates are:

£10 a month for 25-50 hours,
£18 for 51-100 hours, and;
£26 for 101 or more hours.

Expenses may also be estimated based on how big the home office is, the type of equipment used; and the type of business. As long as the estimation is fair, HMRC will rarely dispute it. Although this is simple, it tends to result in relatively small claims.

It is also possible to calculate the total costs of the home and apportion that amount by the floor area which the home office takes up in relation to the whole house.

Definitely worth the time-consuming workings out!

Costs may include energy bills, telephone, mortgage interest or rent, council tax, repairs, and water. If these costs, for example, amounted to £8,000 and the home office was 10% of the total floor space, the claim would be £800. The calculation method can be time-consuming to work out, but remember freelancers -- it has the potential to result in significant tax relief.

Any freelancers unsure whether they qualify for work from home tax relief or the best way to claim expenses for use of their home as an office should seek support from an accounting professional.