How to Claim Home Working Allowance: A Step-by-Step Guide

As remote work becomes more common, understanding how to claim the home working allowance can lead to tax savings. This allowance offsets costs incurred by employees working from home, such as utilities and internet expenses.

Eligibility Criteria

Determining eligibility for the home working allowance is the first step. Eligibility often depends on whether working from home is necessary rather than a personal preference. If your employer requires remote work due to logistical reasons or company policy, you are more likely to qualify. Voluntary home working arrangements typically do not meet the criteria.

Specific rules vary by jurisdiction. In the United States, the IRS requires that the home office be used exclusively and regularly for business purposes. This means maintaining a dedicated workspace, such as a separate room or a defined area, for work activities. The home office must also serve as the principal place of business or where you meet clients or customers.

In the United Kingdom, HM Revenue & Customs (HMRC) offers a flat rate allowance for employees required to work from home, covering additional household expenses. Employees can claim a set amount without providing evidence of actual costs. However, if expenses exceed the flat rate, detailed records and receipts are required to claim the higher amount.

Calculating Home Working Expenses

To determine home working expenses, focus on legitimate costs such as additional utilities, internet charges, and, in some cases, a portion of rent or mortgage interest, depending on jurisdiction. In the U.S., IRC Section 280A allows certain direct expenses, like a dedicated phone line for business use, to be fully deductible, while indirect expenses like utilities are apportioned based on the percentage of home space used for business.

The calculation method also varies. The simplified option in the U.S. allows a deduction of $5 per square foot of home office space, up to 300 square feet. This approach reduces record-keeping but may result in a lower deduction compared to the actual expense method, which requires detailed documentation of all home office-related costs. In the UK, while a flat rate is available, employees seeking to claim more must meticulously document expenses and provide evidence that these costs exceed HMRC’s standard allowance.

Understanding expense apportionment is critical. For example, if a home office occupies 10% of the total home area, then 10% of shared expenses like electricity or heating could be claimed. This requires careful measurement of the workspace and possibly consulting an accountant to ensure compliance with standards and regulations.

Documenting and Tracking Expenses

Documenting and tracking expenses is essential when claiming a home working allowance. Use reliable systems to capture all relevant financial transactions. Digital tools like QuickBooks or Expensify can simplify this process by categorizing expenses, scanning receipts, and generating reports.

Log each expense with details, including the date, amount, vendor, and purpose. This ensures accurate tax reporting and compliance with accounting standards like IFRS or GAAP, which require complete financial records. Maintaining a digital archive of receipts and invoices creates a verifiable audit trail, which is particularly useful during tax audits.

Consistency is key. Regularly updating financial records prevents overlooking expenses and avoids last-minute scrambles to gather documentation. Establishing a routine, such as weekly reviews to reconcile expenses, ensures accuracy. Consulting a tax advisor or accountant can help optimize expense tracking and ensure compliance with regulations outlined in laws like IRC Section 162 for ordinary and necessary business expenses.

Filing Your Claim

When filing your claim for the home working allowance, preparation is critical. Organize all documented expenses to align with your jurisdiction’s reporting requirements. In the U.S., this may involve completing IRS Form 8829 to calculate the allowable home office deduction. Accuracy is vital, as errors can trigger audits or lead to denied claims.

Be aware of deadlines and submission protocols. Each tax jurisdiction sets specific filing dates, and missing them can result in penalties. For instance, the IRS imposes a failure-to-file penalty of 5% of unpaid taxes for each month the return is late, up to 25%. Setting reminders or using professional tax preparation services can help ensure timely submission. Electronic filing systems offered by tax authorities often provide a more efficient and reliable way to submit claims, reducing the risk of errors common with paper forms.