The Covid-19 restrictions saw many employees starting to work from home and when we (hopefully) return to the much over quoted “new normal” both companies and their employees are assessing the feasibility of continuing to work from home, whether that be in a full-time or hybrid home working office capacity.
Irrespective of any personal feelings about the safety of commuting travel and working in the office, it has become apparent that companies are using this as a key time to assess their office space requirements, with this being a significant overhead for employers.
What expenses can I claim
It was commonly the view that in order for an employee to be claiming a working from home allowance, they were only able to claim expenses that were incurred “wholly exclusively and necessarily” in the course of the employment duties. Out of all of the three criteria three the final “and necessarily” was particularly tough to satisfy, in that the employee was previously viewed by HMRC to be choosing to work from home so doing so was not necessarily in the performance of their duties.
Like most things in the world today the Covid restrictions made this historically held HMRC View out of date in the most dramatic way imaginable, in that it was now necessary overnight for nearly all employees to work from home. HMRC reacted quickly and drew up changes to the working from home rules, allowing all employees that worked from home to claim a working from home allowance. HMRC also allowed more generous temporary rules regarding the reimbursement of expenditure to employees in respect of by the purchase of equipment to enable them to work from home.
By virtue of working from home could be additional telephone bills/broadband bills and as well as additional heat and lighting costs and additional electricity needed to run a working from home office, or even just a laptop.
So how much can I claim
Employer’s can make a payment to an employee in respect of reasonable additional household expenses incurred as a result of working from home, quantifying what is reasonable is open to interpretation on both the side of the employee/employer and HMRC. and if this amount is excess of £6 per week (see below) then the employee (not the employer) needs to maintain records in support of the claim being made.
From 6 April 2021, the employer can make a tax-free payment of £6 per week (£4 per week prior to 6 April 2020) to employees who work from home. This flat rate of £6 per week is the same if an employee works from home say one day a week or full-time. One advantage of using this flat rate arrangement is that there is no need for any evidence to be maintained in support of the claim.
It the employer does not meet the working from home costs, the employee can make a claim directly to HMRC, in order to claim tax relief on either the £6 per week flat rate from 6th of April 2020, or an amount that reflects the increase in home bills etc, as a result of directly working from home.
If the employer does not meet the additional household costs incurred by the employee as a result of working from home, the employee is able to claim tax relief, securing a deduction for the costs in the computation of their tax liability. Again if the flat-rate approach is adopted the employee is not required to maintain any records, however if a claim has been made for an amount in excess of £6 per week, full records need to be kept in the event of a HMRC enquiry.
In monetary terms the more commonly adopted £6 per week approach is worth £62.40 to a basic rate taxpayer, £124.80 to a higher rate taxpayer and £140.40 to an additional rate taxpayer.
How to claim the working from home tax relief
Employees can make the claim using this form here.
The online process is designed to allow a claim for those who worked at home during 2020/21 which will give rise to a small tax refund and then include an adjustment in the taxpayers current tax code for the 2021/2022 tax year so the claim is given at source via PAYE.
If an employee is required to complete a tax return for any reason, it is best practice to make the claim via the tax return as opposed to the online form quoted about, as asking HMRC to include an item within a tax code often leads to confusion for both the taxpayer and HMRC as tax codes are often issued incorrectly
Equipment used by an employee to work from home
Pre-pandemic the rules on equipment used by home workers was particularly stringent, in that employers had to provide the equipment used by the employee and the employee had to have minimal private use for this to be provided tax free.
Due to the pandemic employee’s where required to work from at extremely short notice and employers providing the equipment was pretty impossible given the logistical challenges, so common sense prevailed in that employees where now permitted to incur the expense and have the amount reimbursed by the employer without this triggering a tax charge, this is currently set to run until the end of the 2021/2022 tax year.