Working from home can be a nice cushy number; physically and financially. More of us than ever before have been using our home offices ever since lockdown. That includes employees, self-employed people and business owners.
• Premium – Diana Clement: Widen your retail spending bubble – but keep it local
• Premium – Diana Clement: How low can interest rates go?
• Premium – Diana Clement: Huge financial lessons from lockdown
• Premium – Diana Clement: When is a holiday not a holiday?
Of course not everyone wants to work from home. If children, parents or flatmates are under your feet, or there is no good space for a desk, then it may not work for you. Some people just need others around them to bounce ideas off.
If you do want to work from home, make sure you’re claiming your costs back: from your employer if you’re employed, or the Inland Revenue Department (IRD) if you’re self-employed or in business.
Firstly employees. Many have found they save time and also the costs of commuting, corporate wardrobes, more expensive lunches and so on. But there are costs to using your own equipment and utilities.
Don’t be confused about the $15 that employers can claim for employees who work from home (and another $5 tax-free payment to employees for phone expenses). This is about your employer’s tax situation. It was put in place during lockdown because so many employers had workers at home and collecting all their paperwork could have been an administrative nightmare. Many were ill-prepared for the administration, says Garreth Collard, managing director of EpsomTax.com.
Employees can claim from their employer the true costs incurred of working from home. Some employers will provide all of the equipment, from the desk, right down to the very last pen. If you supply your own, don’t short-change yourself. That includes office phones, office chairs, desks, networking equipment, computers, headsets, and much much more, which do slowly wear out and have to be replaced.
If you are self-employed or own a business, even a part-time one, you can claim the actual costs of running a home office, or use a standard formula from the IRD if you prefer.
You can claim 100 per cent of expenses solely for business use such as desks and computers. When it comes to shared costs such as utilities, insurance, phone, mobile and internet charges, you can claim a proportion according to the percentage of space in your home that is used for business.
You must have the intention of earning money; however you can start claiming as soon as your business is set up. So write your business case, choose a business name, get down and open a bank account, and start networking, says Collard.
You can’t claim everything. “Ask yourself what the hypothetical reasonable person thinks (about what you’re claiming),” says Collard. If you asked your mate if you could claim doggy daycare, or designer handbags to look the part at meetings, they’d probably say “yeah, nah”.
There are traps to be avoided. If your “business” is really a hobby with no real intention of ultimately making money you probably can’t claim expenses. You must have the intention of making money even if you’re not there yet.
Don’t assume you can claim everything. There is a limit of $500 per single item ($5000 this year thanks to Covid-19) of what you can claim immediately. Most other expenses need to be depreciated, which means the repayment to you is spread over time.
If you don’t want to work from home there is a half-way house. That’s a serviced office. I checked out Level One HQ in Devonport. For $50 for a casual day or $500 to $600 a month you get a desk/utilities/fast fibre/good coffee/and a professional meeting space. Around a quarter of tenants hot-desk to get out of their home or city office from time to time, says Simon Lampen of Vinsight Software, who runs Level One HQ. In that case, both your home office and the hot-desking costs are tax-deductible.
Finally, whether you’re planning a small or big business, make sure you use an accountant. Tax isn’t straightforward and there are quirks. If you get it wrong you might face some stiff penalties from the IRD.