We recently published an article with guidance for the self-employed to claim business use of home, but with the increased homeworking being required across all sectors, employees may also be able to benefit and it is likely they will be less familiar with the process of claiming for business use of home. Below we detail the tax relief available to you as an employee.
Employers can currently make tax-free payments to their employees of £6 per week (effective from 6 April 2020, prior to this the rate was £4 a week) to cover reasonable additional household expenses – as examples this could include a proportion of light and heat costs for the working area, increased internet charges, and business-related telephone calls. If an employer uses the HMRC guideline rate of £6 per week, the employee neither has to justify the amount paid, nor do they have to keep records to demonstrate the additional expenditure.
If agreed by the employer, greater amounts may be paid but only when the employee can justify the additional expense incurred as a result of working from home (i.e. provide records of the additional cost). If the payments made are more than the additional household expenses, these will be treated as additional earnings for the employee, therefore, subject to PAYE tax and Class 1 National Insurance in the normal way. If evidence of the additional expense is not provided, the value treated as earnings is the total cost to the employer, minus the £6 limit. The rules are clear that there is no entitlement to costs you would usually incur as a result of owning a home, for example mortgage interest, rent, council tax etc.
A recent announcement has also confirmed that employers can reimburse their staff for computer and office equipment purchases, (as examples), that are required to enable them to work from home during the coronavirus pandemic. The employer would ordinarily have to pay tax and NIC on the reimbursed amounts, however, a year long exemption now applies if, firstly, the equipment would have been tax exempt had it been provided directly to the employee, and secondly that the equipment is purely for business use (where private use is not significant). The exemption applies from 16 March 2020 to 5 April 2021.
This payment is possible where work is being carried out regularly from home under an agreed homeworking arrangement. Whilst in normal circumstances, it would be preferable (but not specifically required) to have an agreed arrangement in writing, where employees are working from home whilst their workplace is closed or they are following advice to self-isolate, it is considered that a homeworking arrangement automatically exists for this period of time.
It is, however, advised that any agreement made with your employer be documented for completeness.
Employers are not obligated to make this payment, however, should they choose not to, employees may still be able to claim tax relief on the additional expense from HMRC provided that both appropriate records are kept, and that the expenses are incurred wholly, exclusively and necessarily in the performance of their work. This means it’s only claimable if you are incurring costs in addition to your usual household expenses as a result of using the space in your home. Details of the mechanism for making the claim are at https://www.gov.uk/tax-relief-for-employees/working-at-home
It’s also important to note that the tax relief available only applies if you have to work from home as instructed by your employer, not where you are choosing to do so voluntarily.
Should you require any further guidance, please do not hesitate to contact Gina Gardner on firstname.lastname@example.org or call 01242 776000 to get a call back from a member of our Tax Team.