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Employees working from home and associated costs

As many companies now have staff working from home, employees may find that their utility bills increase as a result.

Can they claim tax relief for this?

There are very few expenses that an employee can claim as an expense against their employment income. Only expenses which are ‘wholly, exclusively, and necessarily in the performance of the duties of the employment’ may be deducted from their employment income.

However, HMRC does accept that where employees are required to work from home (i.e. not through choice), a deduction can be made for the additional cost of working from home. This specifically includes:

  • Additional gas and electricity used while the room is being used for work
  • Metered costs of water used (this may be a few cups of tea, and is unlikely to be substantial)
  • Unit cost of business telephone calls

It is clearly going to be hard to establish the expenses relating to the above. HMRC will accept a flat rate allowance of £4 per week/£18 per month with no evidence to support the actual cost incurred. If the employee believes their costs are higher, a higher amount can be claimed but they will have to keep evidence of the costs incurred to support the claim.

For a basic rate tax payer claiming the allowance, there will be a reduction in their tax liability of 80p per week/£3.60 per month (£1.60 per week/£7.20 per month for higher rate taxpayers). Whilst this is not a substantial amount of money,  as this relief is available, it should not be missed.

Should employers pay for this?

Ideally, employers would reimburse staff for these expenses through a normal expenses claim.  However, this is at the discretion of the employer and given that businesses are already struggling, I doubt many employers would be willing to reimburse employees for their home expenses. If the employer does reimburse staff for these expenses, it is tax free as long as the reimbursed cost meets the criteria that would allow them to claim the cost as an expense.

How do employees claim the relief?

Generally this can be done through their online account with HMRC (government gateway account). Those who already prepare a self-assessment tax return or have expenses of more than £2,500 can claim this relief on their tax return. Those who have five or more employments can claim relief by post.

If an employee notifies HMRC of the expenses they will be claiming in the current tax year before the end of the tax year (5 April), HMRC will be able to amend the tax coding notice. This will reduce the PAYE that is being deducted from the employee’s salary and therefore increase their take home pay now. This can be done online through the government gateway or by calling HMRC. This will save a basic rate tax payer £3.60 per month and a higher rate tax payer £7.20 per month.

If you would like help claiming employment expenses or advising your employees what expenses they can claim, please do get in touch with your PKF Francis Clark tax adviser or Charles Richards at charles.richards@pkf-francisclark.co.uk who would be happy to help you.

FEATURING: Paul Collings
Paul is a tax partner who specialises in advising the owners of our larger family businesses on tax efficient methods of profit extraction. As well… read more
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