An increasing number of people are now working at least part of their time from home and may purchase equipment for their home office to enable them to perform their job functions while they are not at work.

HM Revenue & Customs usually take a strict line on interpreting the tax rules for directors and employees on job-related expenses. The technical rule is that an expense is deductible for tax purposes from pay where it is incurred “wholly, exclusively and necessarily in the performance of duties of the employment” It is the last part of the test which is the most difficult to satisfy in practice.

However, there is another tax rule which allows a deduction for interest payable by a director or employee provided certain conditions are met:

• interest paid must be in respect of a loan to the company and not on an overdraft or credit card balance;
• interest on hire purchase, personal lease back and similar arrangements would also qualify;
• the loan or hire purchase must be used for the purchase of equipment used at least partly for your job;
• the equipment purchased must qualify for capital allowances such as a computer or other office type items
• However, tax relief is not available for interest on loans to buy cars used for your work as these are covered by HMRC approved tax –free mileage allowance paid to an individual by their company.

Where equipment is not used exclusively for job-related purposes, the interest expense must be apportioned between business and non-business use. You will also need to consider national insurance contributions aspects.