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Working from home? Get (some) tax back in five steps

‘Capital items’, like equipment and furniture, bought by an employee are not allowable

The bad news first. Even if you've been working from home full-time since last March, you won't be in line for a big tax rebate on the expenses you've incurred, such as heat and electricity.

While the tax allowances allowed became more generous in October's budget, to incorporate broadband, it's not going to be enough to send you on a holiday – if and when you can go. If you pay tax at the higher rate, you might be looking at tax back of about €65, and just €32 on the lower rate.

However, while it may seem like a miserly amount, “every little helps” as they say and this year, more than most, you might want to claw something back. Here’s how you can do it.

Step 1: Assess your entitlements

There are two ways of getting something back on your working from home expenses. Either your employer pays you a stipend, or you claim back on taxes paid.

In the first instance, employers are entitled to pay you up to €3.20 a day tax free. That’s about €750 a year depending on the number of days worked.

This can be paid tax free, so is really quite a valuable benefit. Similarly, if your employer provided you with a desk or computer, or paid for your broadband or telephone, a benefit in kind charge won’t arise.

"In reality, the majority of employers aren't doing that," says Marian Ryan, consumer tax manager with taxback.com, noting that the ones who are would typically have had people working from home prior to the pandemic.

This means that, for most employees, the only recourse is to get their relief through the tax system.

Step 2: Get your documentation together

While you won’t need to send the Revenue Commissioners any proof of expenses etc, you will need to hold on to them for six years in case they question your claim. So, now is the time to start gathering together those bills and working out how much you have paid during the time you worked from home.

Once you get your final bills for December, you will be able to make your claim come January. Remember, at present, it is heating, electricity and broadband bills you can claim against.

According to Ryan, you will also need a letter from your employer confirming the period you spent working from home. Again, Revenue won’t request this, but you should have a copy in case it queries your claim.

Many employers have now started automatically sending these out to their employees so if you haven’t received one, check with your HR department. It will say when you started working from home, and your normal working hours.

Step 3: Work out your expenses

Now you can see how much you might be entitled to. So let’s say, since March 20th, you’ve worked from home. Given that you will likely still be at home by year-end, this means that you will have worked about 185 days at home for 2020.

First off is to work out your entitlement to heating and electricity, which you can do by totting up how much you’ve spent, multiplying it by the amount of time spent working from home, and dividing it by the days in the year.

With an annual bill of €1,872 (based on average gas/electricity household bills) for example, and applicable days of 185, you will come up with €948.

But you can’t claim all that back; Revenue now wants you to work out the amount that should be apportioned for home working. It says that the average proportion of the house attributable to a home office is just 10 per cent; so the amount here that you can include on your tax form is just €948/10 = €94.80.

Thanks to Budget 2021, you can improve this credit somewhat by adding broadband charges. Remember, if you get broadband as part of a package with your television, Revenue says that you’ll need an itemised breakdown “in order to allow for the accurate apportionment of expenses incurred wholly, exclusively and necessarily in the performance of the duties”.

If we consider broadband charges of €450 a year, with 185 days worked, we come up with €228; 30 per cent of this comes to €68.40. So when combined with our €94.80 from heat and utility, we get total work from home expenses for 2020 of €163.20.

But don’t get excited just yet; you can’t look for a tax refund of this. Rather, you can now claim a tax credit against this amount.

If you pay tax at the higher rate, this means you can claim back €65.28 (163.20/100*40), or just €32.64 (163.20/100*20) at the lower rate. And that’s most likely your total entitlement.

And it doesn’t get any better if a couple is working from home, as according to Revenue the cost should be split based on the amount paid by each individual, before applying the relevant percentages and calculation based on the number of days worked from home over the year.

“As such, the allowable costs are never more than either 10 per cent or 30 per cent, whichever applies, of the entire bill, apportioned according to the number of days worked from home over the year.”

Given the level of work involved for claiming back such a small amount, it’s no surprise that taxback.com wants to see the introduction of a new flat rate expense relief, similar to those already in place in other areas, which would make claiming far easier and could see workers potentially better off.

Start 4: Be aware of what you can’t claim for

Revenue has confirmed that you cannot claim tax relief against many items, such as a laptop, printer or chair that you may have bought over the past number of months to help you work from home.

According to Revenue “capital items”, such as laptops, computers, office equipment and office furniture, purchased by an employee are not allowable deductions under section 114 of the Taxes Consolidation Act (TCA) 1997.

This means that unless your employer reimburses you for the cost of such purchases, you won’t be able to get anything back from the taxman and will bear the full cost yourself. The rules for the self-employed are different, however, in that such expenses can be deducted from their tax bills.

It’s also worth noting, that, working from home does not affect your eligibility for capital gains tax (CGT) relief. This has been a concern for some, but Revenue has confirmed that if you’re working from your main residence, and you sell it at a later date at a profit, you won’t owe CGT on it.

The CGT issue only affects self-assessed taxpayers who operate a business from their home.

Step 5: Start filing

Once you’ve done your sums, you’re now ready to file your tax return and claim your working from home credits. Revenue says that by January 15th, 2021, it will have a preliminary end of year statement available for all PAYE taxpayers in MyAccount, detailing your tax situation for the year.

Previously, tax credits were claimed in a different way, but now Revenue wants PAYE workers to file an income tax return, which is done via its MyAccount service. If you haven’t already registered for this service, you can do so here.

Anytime you file a tax return, you might feel that you’re opening up your affairs to scrutiny by the tax authorities; and this scrutiny may not work out in your favour.

And if you, or your employer, benefited from the Pandemic Unemployment Payment or Temporary Wage Subsidy Schemethis year, you may well find that your "statement of liability" which is created as part of this process comes out against you. However, claiming the e-worker credit, small as it is, may at least help to reduce such liabilities. Alternatively, it could result in a small payment to your bank account.

Once you’ve gone through the personal details of the form – much of which will be pre-populated to help you – you’ll come to the “tax credits and reliefs” section. Select remote working (e-working) expenses and insert the amount you wish to claim. In the example above, the total expenses you enter would be €163.20.

Remember while filing your return to claim additional tax credits, reliefs and expenses, such as health expenses, stay and spend, college fees etc, where applicable, which can help reduce your tax bill even further and add to any refund you receive.

If you’re due a refund, payment will be made direct to your bank account. If it turns out that you actually owe Revenue money (and this possibility may inhibit some from filing), you can either pay this money up front, or Revenue will collect it by reducing your tax credits for a future tax year(s)to minimise any hardship.