COVID-19: Partners in professional practices working from home

In this current tax year there remains a number of people at least working a few days from home.

HMRC clarified their guidance with regard to employees for the tax years 2020/21 and 2021/22 and allowed relief to be claimed regardless of the actual number of hours worked from home. Read the employment tax consequences of working from home.

The position with regard to partners is quite different and firms need to somehow keep a record of the hours individual partners work from home each month, so they know how much can be claimed in the tax computation.

Are partners able to be compensated for the costs incurred in working from home?

Partners can be compensated for personal costs they incur which are wholly and exclusively for business purposes. The personal costs that are likely to be incurred for business purposes include the extra running costs of the home, telephone and internet costs and items purchased for the smooth running of a partners’ home office.

Running costs of a home

An allowable deduction is the amount of the expense which relates to the homeworking and will include a proportion of the insurance, council tax, mortgage interest, rent, repairs, water, light and heat. The apportionment will depend on the area used, the usage and the time used for business purposes.

For example, if a partner uses a study for 8 hours a day during the week for three months and the room is one eighth of the size of the house, then all those factors will need to be considered when working out the valid apportionment of the expenses. Furthermore, all relevant records including rationale for the apportionment will need to be kept for five years and 10 months.

Over enthusiastic partners, claiming that part of the home is used exclusively for business purposes, will therefore:

• increase the expense claim
• restrict the Capital Gains Tax main residence relief available on the disposal of the home
• possibly generate business rates issues.

Fixed rate deduction – alternate HMRC concession

However, HMRC concessionally operate a simplified monthly flat rate which is aimed at compensating partners for running costs of a household (except telephone costs, see below), without the need for record keeping. However, there will need to be some form of records showing hours worked at home during the month. HMRC fixed rate deduction reduces the administrative burden of maintaining records of all relevant expenses and appropriate apportionment details to support an estimate of the actual cost.

The amount that can be claimed as an allowable expense is dependent on the number of hours worked from home in a calendar month.

It may be beneficial to claim on an actual basis, but for a firm the burden of obtaining and maintaining adequate records from all partners could outweigh the benefit.

Telephone and internet costs

Telephone and internet costs are not covered by the monthly fixed rate deduction and therefore partners could be compensated for the business element of the following:

• calls
• line rental
• internet charge.

For many partners there may not be much in the way of domestic line rental; calls may be via their computer or mobile phone. 

Capital expenditure

Now that a partner is working from home, they may decide to purchase items for their “home office” such as printers, chairs, desks, monitors and filing cabinets. Capital allowances can be claimed for the business element of these items.

How does a partner receive relief for these personally borne expenses?

There are two options:

1. The firm reimburses the partner for the expenses and they form part of the accounts of the business.
2. The firm DOES NOT reimburse the partner for the expenses, but allows tax relief to be claimed via the partnership tax return.

If the personal expenses are wholly and exclusively for the business purposes they can be deducted at arriving at the firm’s overall taxable profits. A claim can then be made on the partnership tax return. Tax relief is given by the allocation of the firm’s taxable profits, see example below.

Individual partners cannot make a claim on their personal tax returns.

For more information please contact your usual Crowe contact.