Remote work: home office expenses and taxes

The COVID-19 pandemic has significantly impacted global work arrangements. Pre-pandemic, remote work was limited to a small portion of the workforce, often confined to specific sectors or roles that didn’t require physical presence. However, the pandemic’s rapid spread and the need to reduce interpersonal contact have catapulted remote work into unprecedented popularity.

In sectors like IT, where tasks mainly require a computer and internet connection, many employees have smoothly transitioned to home offices. Similarly, customer service, marketing, and administration personnel have continued their work remotely.

Remote work’s rise has highlighted both positives and negatives. Benefits include increased flexibility in work time and location, savings on commuting time and costs, and improved work-life balance. For instance, a city dweller might now avoid long commutes, saving both time and money. A parent with a preschooler can better adjust their work schedule to suit their child’s needs.

Conversely, remote work has underscored various challenges. These include the need for a suitable home workspace, blurring of home and work life boundaries, increased loneliness and communication issues with the team, and the costs of setting up and maintaining home offices. Employees might find themselves purchasing new desks, chairs, or even computers to work comfortably and efficiently from home. Energy costs may also rise due to increased lighting, heating or cooling, and electronic device use.

Home Office Expenses

Home office costs encompass various expenditures incurred in setting up and managing remote work. These expenses are often necessary for ensuring employee productivity and well-being in a home office. They include:

• Equipment and Supplies: Remote work often requires specific devices and supplies, such as a capable computer or laptop. Additionally, employees might need printers, scanners, headphones, webcams, ergonomic office chairs and desks, and various office supplies like paper, pens, and sticky notes. For example, a graphic designer might need a powerful computer and a professional graphic tablet, while a programmer might require multiple monitors and a high-speed computer.

• Internet and Communication Costs: Remote work heavily relies on digital communication, necessitating a stable and fast internet connection. Employees may need to upgrade their internet plans for increased data or speed. Communication costs might also include video conferencing software subscriptions, VOIP services, or even mobile phone plan upgrades.

• Energy and Utility Costs: Remote work can lead to increased energy consumption as devices run throughout the day, and heating or cooling costs may rise. Additionally, utility costs may increase due to more frequent use of water and sanitation.

• Space Rental or Home Usage for Work: Some employees might choose to rent a separate space for a home office or use a portion of their home for work. This can incur additional costs, such as space rental or higher utility bills. Some workers might also make modifications or renovations to create a more suitable work environment.

The exact nature and size of home office expenses can vary greatly among employees, depending on their profession, nature of work, and home situation. However, these costs can accumulate quickly, so careful planning and management are important.

VAT Considerations for Home Office Expenses

In Estonia, VAT considerations for home office expenses depend on specific circumstances. VAT accounting for home office costs can be complex, and the following are general points to understand how it works in Estonia:

• Business-Related Expenses: If you are a sole proprietor or a company owner, you can deduct VAT for purchases made for business purposes. For instance, buying a computer or office supplies for your business allows you to deduct VAT.

• Employee Home Office Expenses: If you are an employee working from a home office, it's important to note that the right to deduct VAT remains with your employer. Employers can reimburse certain home office expenses, like internet connections or office supplies, and deduct VAT on these purchases.

• Home Office Use for Business Purposes: If you use your home also for business, it’s important to note that VAT deductions can only be made proportionally to the business-related use. For example, if you use your home 50% for business, you can deduct 50% of the VAT.

It’s crucial to note that VAT laws can be complex and subject to change. Therefore, consulting a tax advisor or the Tax and Customs Board for accurate and up-to-date advice on your specific situation is advisable.

Reimbursing Home Office Costs

Regarding remote work arrangements, both employers and employees have responsibilities. Typically, the employer is responsible for providing work tools, including computers, software, and other necessary equipment. Employees, however, are often responsible for organizing their workspace, including finding a suitable room and work tools like a desk, chair, and lighting.

What Home Office Costs are Reimbursable?

The reimbursability of home office costs often depends on the employer's policy and can vary by country. Some employers reimburse costs for employer-required tools and equipment, including computers, software, office supplies, and other work tools. Others may also cover remote work organization costs, like