Demystifying home office expense claims
Illustration by: Sensibill
A guide for Canadian and UK employees
So many workers across the world have made the transition from working in an office to working from home. At Sensibill, we’ve implemented work-from-home (WFH) for our entire organization too (if you want to see how we are reacting to the current situation, please read our statement here). As we’ve settled into this new working environment, the inevitable question of how to handle work-from-home expenses came up. To help, we sat down with Canadian and UK accountants to debunk some myths surrounding home office expenses, highlighting what you can or can’t claim, and how to go about getting your expenses reimbursed.
Select your country:
Canada
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For Canadian employees, we spoke to Adam Singer, CPA (CA), CFE, a chartered accountant, co-founder of Singer Steinberg Professional Corp, and writer at There's No Crying in Finan¢e.
Myth or Fact: My employer can sign a T-2200 and I can use all supplies, materials and purchases related to working from home off from my earnings.
This is indeed a MYTH!
A T-2200, or the Declaration of Conditions of Employment, is a CRA form required by any employee claiming deductions related to work from home expenses. It is important to note that the employee must request this form from the employer; unlike a T-4, it is not automatically generated. Adam explains that while your employer “can sign off on this document noting you were required to have a workspace in your home, there is one very specific criterion that may cause an issue.” The CRA dictates that “the workspace is where you mainly (more than 50% of the time) do your work.” The second condition is that you must use the space only to earn employment income. Digging further into this, Adam says that the CRA wording “relates to the entire period you are working for the employer. Thus, this may be mandated today, however, if/when offices are re-opened, you may not have achieved the 50% threshold.” Meaning that if you are mandated to work from home from March 1st until June 1st you would be unable to claim these expenses on your taxes.
Myth or Fact: My employer can provide me with dollars to outfit my home working space for this temporary WFH and this will not be considered ‘taxable’ income to me.
This is a FACT!
What does Adam think? “Similar to your employer outfitting your office space with a computer, monitor, supplies, etc. for the purpose of helping you outfit and modernize your home workspace to actively support your company earning income, any monies provided over and above your working salary would not be considered income to you.” Keep in mind, these funds must be directed to purchase supplies and systems or other productivity items, and would require receipts for back up at the time of an audit/review by CRA.
Myth or Fact: If COVID-19 changes the structure of my employer’s WFH policy, resulting in me being required to WFH more than 50% of the time and conduct meetings and other duties from my own space, I will be eligible to deduct expenses from my earned income.
This is FACT (for now)!
Given the government’s rapidly changing policies and creation of subsidies to help Canadians through this environment, it may not be unreasonable to believe that the tax benefits for WFH may change as the government continues to accumulate debt. However, Adam reassures us that until that changes, if your employer requires you to WFH (perhaps because they no longer have office space), many items can be deducted from your income on a proportional basis to how much space your home office utilizes to the total area of your home.
For example, while you can claim a portion of your bills (such as electricity, heating, home insurance, or property taxes), you cannot claim deductions against your mortgage interest or capital cost allowance.
Don’t forget to keep your receipts! It is vitally important to keep your bills, receipts and statements (either print or electronic) to prove your claims are accurate to your expenses during your work from home period. The CRA requires you keep records for your claims for up to 6 years.
While you do not submit the receipts with your claim, if you discard your receipts, the CRA may reduce your claim. Make sure the receipts you are keeping clearly show the following information, as required by the CRA:
Date of purchase
The name and address of the seller or supplier
Your name and address
A full description of the goods or services you bought
Information regarding the GST/HST you paid on your expenses, or the rate of tax if you are claiming the GST/HST rebate for employees
UK
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For employees living in the UK, we spoke with Nikhil Oza, from UHY Hacker Young. Nikhil is a chartered accountant (ACA), with over 14 years of experience, Nikhil specializes in corporate tax matters and has worked with clients of every size.
Myth or Fact: You don’t qualify for tax relief if you choose to work from home.
This is a FACT!
To qualify for tax relief or expense reimbursement, there are conditions that must be met. If you are working from home by choice you are automatically ineligible for relief. If working from home is a part of your contract of employment, or if you have a regular work from home agreement with your employer, you qualify for either employer reimbursement or tax relief. When working from home is part of an agreement, your work from home hours must be frequent and follow a pattern (such as working from home 2 days every week).
What about those working from home due to COVID-19 - can they claim expenses related to this without a home working agreement? Nikhil says yes - “as long as the employee is not ‘choosing’ to work from home and is forced to do so as a direct consequence of the COVID-19 restrictions.” Nikhil also shed light on information released by HMRC relating to salary sacrifice arrangements: “Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a ‘life event’. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.”
Myth or Fact: I can expense my current broadband bill as part of my home office expenses.
This is a MYTH!
Nikhil explains that “certain costs are simply excluded from relief, such as costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates.” Nikhil provides examples of some common expenses he has seen claimed as a result of the COVID-19 pandemic: phones and sim cards, new broadband, and office supplies. He clarifies that “if, as an employee, you already pay for broadband, then no additional expenses can be claimed.” However, if you need to purchase a new broadband connection and one was not already available, “the broadband fee can be reimbursed by your employer and this is non-taxable” with the exception that the broadband must be limited for business use.
Myth or Fact: I can only get reimbursed if my employer accepts my expenses.
This is a MYTH!
There are two ways to get reimbursed: your employer reimburses your costs, or you can seek tax relief.
1. Reimbursement by Employer: In April 2016 HMRC introduced an exemption for paid or reimbursed expenses. Nikhil states that “under this exemption, qualifying expenses can be paid by employers free of tax without the need for an employer to apply to HMRC for a dispensation.” Employees would no longer need to make a claim to HMRC for a corresponding tax relief. There are a few options for this, either a fixed flat rate of £6/week (or £26/month for monthly paid employees), or a larger amount can be paid subject to provision of evidence for additional costs. Nikhil points out that if you think your costs exceed this amount, “check with your employer as to whether they will make payments of the higher amount.” He also suggests keeping receipts to support the additional costs.
2. Seeking tax relief: If your employer does not reimburse all or part of your home working expenses, you won’t automatically be given tax relief. Nikhil explains that “when employers do not reimburse expenses [...] this can be deducted from an employee’s taxable income.” If an employer fails to reimburse for business travel, the employee could submit a claim to HMRC after the end of the tax year, claiming tax relief at their marginal tax rate.
Myth or Fact: I don’t need to keep my receipts for my home office expenses.
This is a MYTH!
“It is always wise to keep records and receipts of all expenses being claimed,” Nikhil explains that receipts are key should HMRC ever enquire into your tax affairs. They are especially important if you are being reimbursed for more than the £6/week by your employer. You must also be able to prove the cost is incurred exclusively for your work.
Looking for an easy way to manage your receipts for home office expenses?
See if your financial institution is listed HERE as one of our partners.
*NB Sensibill is not an accounting agency, for further information, please check with your employer, an accountant or the governing bodies in your area.