What tax reliefs are available to support employees who are required to work at home? We look at this, along with the change announced on 13 May for tax relief on the cost of home office equipment.
For years, many employees have wanted to work from home; employers have considered it, but thought it wouldn’t work. Everything changed with the Covid-19 pandemic and suddenly those that could, had to work from home. Since March, video calls and virtual meetings have become the norm as we have tried to find a comfortable working environment – it’s a world of working with children, pets and spouses and sharing home-work space.
As we are set to work from home for the foreseeable future, employers start to think about how they can support these staff and in turn employees are now asking what they can claim as there are additional costs for them at home. As we need to move away from the armchair and kitchen table to a more health and safety conscious environment, employers need to consider workplace assessments.
But what can you claim whilst working at home and what are the tax opportunities – allowances, reliefs and equipment?
The homeworking allowance was increased in the Spring Budget from £4 to £6 a week (or £26 a month) with effect from 6 April 2020. An employer can pay this fixed sum, tax-free and National Insurance (NI)-free, to meet the additional costs an employee incurs working at home under homeworking arrangements. (Homeworking arrangements mean an agreement, ideally in writing, between the employer and employee under which the employee works at home regularly as part of their job, not just informally at weekends or evenings.
During the coronavirus pandemic, HMRC will accept that employees working from home because their employer’s offices have closed – or because the employee is following advice to self-isolate – meet these requirements. Newly home-based employees will be eligible to receive the allowance tax free from the date that their employer agreed they could work from home, or from when government advice was announced.
An employer can pay more than £6 a week, provided there is evidence to support the additional costs incurred, otherwise any excess will be subject to tax and NI. The alternative of an employer agreeing a bespoke scale rate with HMRC is currently unlikely. Additional costs which can be reimbursed include the additional cost of heat, light, insurance, water and telephone or broadband, but not fixed costs such as mortgage interest, rent or water rates.
To be reimbursed tax-free, the employee’s costs must have increased as a result of home working. For example, an employee who is already paying for broadband cannot claim reimbursement for their internet costs simply because they are now working from home, unless there is an increased cost from usage. But if they didn’t previously have internet access and now require it, this will be an additional cost.
Where an employer is unable or unwilling to pay the homeworking allowance, or to reimburse in full the employee’s extra costs, can the employee get tax relief for the costs of homeworking?
While there is a specific provision in section 316A ITEPA 2003 for the homeworking allowance, tax relief for homeworking costs is only available under the much stricter general provisions of section 336 ITEPA 2003. Costs must be incurred wholly, exclusively and necessarily for the employee’s work. HMRC will accept that this is met if the employee’s home is a workplace.
The employee cannot just choose that their home is their workplace. To be a workplace, the employee’s homeworking must meet four criteria, including that there is no place for them to work at their employer’s premises and that the employee wasn’t able to choose between working at home or in the office at any time during their contract.
Given the current situation, it is likely that HMRC will accept that an employee can’t work from their employer’s premises, but we haven’t seen definitive confirmation that HMRC will accept that the further condition of lack of choice over working arrangements has been met.
If the four conditions are met, the employee can claim relief for household expenses including:
- Heating and light for the working area
- Metered cost of water used in the performance of duties
- Unit costs of telephone calls
Where a claim is possible, an employee can either keep records and claim relief for their actual costs or claim a fixed amount using the homeworking allowance as detailed above, with an additional claim for the cost of business telephone calls on top.
An employee can make a claim online, by phone, by post or, if they are registered for self-assessment, through their tax return. HMRC has a handy tool to help guide employees to the best approach for them.
Many new homeworkers will have realised by now that working solely on a laptop is intolerable for long periods. Some may have bought additional monitors, keyboards and even desks and chairs.
If the employer has purchased and provided the necessary equipment then, provided there is no significant private use, no taxable benefit in kind arises. However, if the employee has purchased equipment personally, then any subsequent reimbursement would ordinarily be taxable on the grounds that it is difficult to pass the ‘necessarily’ test.
On 13 May 2020 the Financial Secretary to the Treasury announced that, as a temporary measure for 2020/21, employers will be able to reimburse employees for the purchase of home office equipment required as a result of the coronavirus outbreak without a tax liability, if it would have been exempt if provided by the employer directly; further details are expected later in May. HMRC will also be given discretion not to collect tax on any reimbursements for equipment from 16 March 2020 when homeworking because of lockdown was first recommended for many employees.
This is a very welcome move as, without these provisions, the best hope for an employee was for their employer to pick up any tax bill resulting from the reimbursement by including it in a PAYE Settlement Agreement which would have been expensive and administratively complex.
If the employer is unable or unwilling to reimburse equipment costs then employees will need to see what other options are available to them, such as capital allowances, but they may struggle to obtain such relief. More information can be found here.
In the light of the coronavirus situation HMRC has published some specific guidance on homeworking expenses.
If you would like to discuss any of the above in more details, please contact me or my colleague Scott Campbell and we’ll be happy to help.