Tax Doctor:
Mark McLaughlin
ATII ATT TEP

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January 2004

Q:

Are there any recent developments involving working from home and tax related issues?

A:

Individuals are working from home in increasing numbers, whether as employees or self-employed. It therefore seems likely that new tax laws and practices will develop in this area, to cope with this major change in working patterns.

Business rates

A potential worry for home-based workers is whether the local council will charge business rates for that part of the property used for work. This will depend on the circumstances of each case. However, home workers can take some comfort from a recent Valuation Tribunal ruling against the Valuation Office Agency (VOA) in Tully v Jorgensen. This ruling involves Mrs Tully, an Inland Revenue employee who works at home on disability grounds, being physically unfit to travel to work every day on account of a back injury. The Inland Revenue provided equipment to enable her to set up an office in a spare bedroom. No structural work or adaptation was carried out to enable Mrs Tully to work there, and no business meetings were held at the property. The VOA assessed the property partly to business rates. However, the Valuation Tribunal allowed Mrs Tully's appeal against the non-domestic rating assessment.

This could be an important decision for home-based workers who use a room at home, particularly where the following factors are involved:

• The room and property is not structurally adapted for work;
• The work area is not separately identifiable from the remainder of the room or house;
• The furniture or equipment is not inconsistent or incompatible with domestic use;
• No staff are employed in the room or house;
• There are no outward indications of a separate business premises or entity; and
• No meetings take place in the room or house on work related matters.

The President of the Valuation Tribunal in the Tully case added; "I see no significance in the fact that she is employed rather than self-employed and that all her work, apart from meetings, is carried on there." A transcript of the decision (Eileen and Michael Tully v Mark Jorgensen) is available on the Lands Tribunal website:
www.courtservice.gov.uk/tribunals/lands/decisions/ra-22-2001.htm

Expenses and benefits of employees working from home

The Inland Revenue publication 'Tax Bulletin' (Issue 68, December 2003) carried an article on expenses incurred by home workers who are employees using computers and telecommunications to carry out office work at home (referred to in the article as 'teleworkers'). The article points out certain tax rules of possible assistance to these home workers:

• A tax exemption for provided furniture, equipment, supplies and services, where the employer's sole purpose in providing them is to enable the employee to perform his or her employment duties, and any private use is not 'significant';
• The above tax exemption can extend to the provision of a telephone line in the employee's home and to broadband Internet access in certain circumstances (broadly if there is a clear business need for the telephone etc, the employer has procedures to monitor, control and minimise private use and the employer has no intention of rewarding the employee);
• A limited exemption for computer equipment provided by the employer (broadly up to the first £500 of the benefit-in-kind calculated), with the excess potentially exempt under (a) above;
• An exemption from tax for any additional expenses that the employer may reimburse for the day to day running costs of the employee's home (e.g. additional costs of heating and lighting the work area, the metered cost of increased water use, increased charges for internet access or telephone use, any increase in household contents insurance, or possibly a business rates liability). Up to £2 per week can be paid to employees working regularly at home without the employer having to justify the amount paid or the employee having to keep any records to demonstrate the additional expenditure. Greater amounts can be paid where the employer provides evidence to justify them.
• Tax relief is available for business travel from home to the employer's office, unless that travel is ordinary commuting. A home worker can have an 'ordinary commuting' journey despite working mainly from home, if he or she travels regularly (say one day per week) to the employer's office. However, irregular visits do not make the office a 'permanent' workplace, so that a tax relief claim is possible.
• There is a general deduction from earnings if the employee incurs expenses in working from home. This relief applies if the employee is obliged to incur the expense, and if that expense is incurred 'wholly, exclusively and necessarily' in the performance of his or her employment duties. In addition, the Inland Revenue consider that the nature of the employment itself should require any employee to work at home, rather than as a matter of personal choice.
• The article in Tax Bulletin 68 can be viewed by visiting the Inland Revenue's website:
  www.inlandrevenue.gov.uk/bulletins/tb68.htm

Further information

Additional information on working from home can be found in previous Tax Doctor articles:

• Tax Doctor 1 - Tax relief for home running costs of the self-employed;
• Tax Doctor 10 - Tax relief for employees' additional household expenses, and capital gains tax implications of using the home for business; and
• Tax Doctor 13 - Home-based businesses and property running costs

Mark McLaughlin

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