If certain conditions are met, no tax liability arises where an employer makes payments to an employee for reasonable additional household expenses, which the employee incurs in carrying out duties of their employment at home under ‘homeworking arrangements’.
‘Homeworking arrangements’ are arrangements between the employee and the employer under which the employee regularly performs some or all duties of the employment at home. There is no requirement for any part of the employee's home to be used exclusively for the purposes of the employment.
Homeworking arrangements
HMRC will accept that homeworking arrangements exist where:
• there are arrangements between the employer and the employee; and
• the employee works at home regularly under those arrangements.
The ‘regularly’ condition will be met if working at home is frequent or follows a pattern. The fact that the days spent at home vary from week to week is not a bar to claiming the exemption.
The HMRC guidance also advises:
‘the arrangements need not be in writing but usually will be. They do not need to apply to all employees. The exemption does not apply where an employee works at home informally and not by arrangement with the employer. For example, it will not apply where an employee simply takes work home in the evenings.’
‘Household expenses’ are defined as expenses connected with the day-to-day running of the employee's home. Typically, this will include the additional costs of utility bills, but there might also
be increased charges for internet access, home contents insurance or business telephone calls.
To minimise the need for record-keeping, employers can pay up to £4 per week (£18 per month/£208 per year) without supporting evidence of the costs the employee has incurred. If an employer pays more than that amount, the exemption will still be available, but the employer must provide supporting evidence that the payment is wholly in respect of additional household expenses incurred by the employee in carrying out his duties at home.
What about the self-employed?
An individual running a business from home, using the cash basis for calculating taxable profits, may benefit from using HMRC’s simplified expenses regime, which broadly enables the business to claim flat rate expenses for business costs for vehicles, working from home, and living at the business premises.
Instead of calculating the business use proportion of utility bills and other household expenses, a flat rate is claimed depending on the number of business hours worked each month. The current rates are as follows:
No of hours worked per month Allowable amount
25 or more £10.00
51 or more £18.00
101 or more £26.00
Where a premises is used for both business and private purposes (for example, a guesthouse), instead of making the standard deduction outlined above, a deduction may be made for non-business use. The non-business use amount is the total of the applicable amounts (below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:
Number of relevant occupants Applicable amount
1 £350
2 £500
3 or more £650
A relevant occupant is someone who occupies the premises as a home or someone who stays at the premises otherwise than in the course of the trade.
Practical tip
A business does not have to use simplified expenses. HMRC provide a simplified expenses checker, which can be used to compare what the business can claim using simplified expenses with what can be claimed using actual costs. The checker can be found online at www.gov.uk/simplified-expenses-checker. The tracker may help the business decide which method best suits its needs.
