The taxman has increased the amount that employers can pay `no questions asked’ as a tax-free allowance to workers who work at home to £4 per week from 6 April 2012. However, this is not a maximum amount and, depending on the circumstances, it is possible to pay more without generating a tax charge.
Many employees now work at home, all or some of the time. By working at home an employee will incur some additional household expenses, such as additional electricity costs, additional costs of heating and lighting and possibly additional telephone and cleaning costs.
A statutory exemption allows an employer to make a payment to an employee in respect of reasonable additional household expenses that the employee incurs in carrying out the duties of the employment at home under homeworking arrangements. For the purposes of the statutory exemption, homeworking arrangements are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home.
The arrangements can be voluntary and the employee can choose whether or not he or she works from home.
The tax-free payment is designed to reimburse reasonable additional household expenses. These are expenses connected with the day-to-day running of the home. A separate exemption exists for equipment provided to enable the employee to work from home.
No questions asked!
As long as the amount paid does not exceed the HMRC guideline rate, the payment can be made tax-free without the need to provide supporting evidence of actual additional household costs incurred by the employee as a result of working at home. Further, there is no need to report the payment to HMRC, nor is any NIC payable by either the employer or the employee.
The guideline rate is £4 per week for 2012/13 (£208 per year) for 2012/13 and £3 per week (£156 per year) for 2011/12. The amount does not have to be paid weekly. It can be paid monthly or annually instead, as long as the amount does not exceed the guideline rate.
The same guideline rate applies if the employee works at home every day or only once a month. The legislation requires simply that the employee `regularly’ performs some or all of his duties at home; working at home on the last Friday of each month would be a regular arrangement.
Paying more than £4 per week
Where an employee spends all or most of his working week working from home, it is conceivable that additional household expenses incurred as a result will exceed £4 per week. The employer can reimburse the additional household costs in full without triggering a tax or NIC liability as long as there is supporting evidence of the additional costs. Where supporting evidence is available, there is no need to report the amount paid.
However, if the employer reimburses expenses in excess of £4 per week, but has no supporting evidence to substantiate the amount actually paid, anything over the guideline rate is taxable and subject to NIC and must be paid through the payroll.
Saving work
Where actual additional costs of working at home exceed the HMRC guideline rate, collecting supporting evidence of actual costs incurred is unlikely to be cost effective. As an alternative, the employer could agree scale rate payments with HMRC, which reflect the average additional costs of working at home.
No reimbursement
The guideline rates can also be used to claim a deduction where no allowance is forthcoming. However the more stringent conditions for deductibility of expenses must be met for a deduction to be given. Where such conditions are met, amounts in excess of the guideline rate will be allowed, as long as supporting evidence of the actual costs incurred is available.
Practical Tip :
An exempt allowance can be paid to employees who work at home on a regular basis, even if the arrangement is voluntary.
Sarah Bradford
