Jennifer Adams considers the tax implications of an employee making a claim for 'use of home as office'.
A claim for the additional household costs incurred when working from home rather than in an office has been possible for many years, but many employees and their employers have only been made aware recently due to the pandemic.
The claim is made under the general deduction of expenses which states that a deduction from earnings is allowed if an employee has incurred more costs than would normally apply if the employee worked in the office; the employee is obliged to incur that additional cost and the amount is incurred “wholly, exclusively and necessarily in the performance of the duties of the employment”.
Most people are aware of the £6 a week flat rate allowance, but higher costs can be claimed if proof can be supplied.
Flat rate allowance
No evidence is required to support the flat rate allowance although a claim needs to be made. To be free of both tax and National Insurance contributions (NICs), the flat rate is set at £6 a week (£26 a month).
There has been such an increase in the number of claims due to employees being required to work from home during the pandemic that HMRC has an online claim service where employees can make the £6 a week flat rate claim. The form permits a claim for the 2020/21 and 2021/22 tax years and HMRC has confirmed that even if an employee was required to work only one day at home during those two tax years, then a claim for the whole year can be made (i.e., £312 each year). Claims for 2022/23 onwards revert to the usual rules, with claims being restricted depending on how long the employee works from home.
Normally, for this exemption to apply there must be a homeworking agreement in place and the employee must be required to work from home regularly, such that there is a pattern of working (e.g., one day a week). In practice, any communications such as emails notifying employees of their requirement to work from home should be sufficient to confirm a 'homeworking agreement'.
Additional household expenses
The flat rate amount of £6 a week exempts the payment from tax and NICs with no declaration being required. However, it is possible to claim more than the flat rate amount if it can be proved that the home working costs have been necessarily incurred. Usually, HMRC requires a high level of proof that the payments are no more than the employee’s additional household expenses.
Should the payments prove to be more than the actual costs, tax and NICs are charged on the excess only. However, even where the employee gains a personal financial benefit from the goods or services, no tax or NICs charge will arise as long as the private use is 'not significant'.
Although not defined in statute, HMRC’s view of what counts as 'not significant' private use can be quite generous, which means employees can sometimes achieve real tax and NICs-free advantage from this exemption.
Unlike the first exemption, there is no need for the employee to regularly work from home or for there to be a formal agreement; there is no financial 'cap' but the employee must have a genuine need for the goods or services so they can do their job from home.
Broadband costs
Separate from the above claims, an employer can reimburse an employee's broadband fee if a connection is not already available, the employee is required to work from home, and the system is mainly used for business purposes.
Practical tip
If an employee is required to work from home occasionally or on a 'one-off' basis, the flat rate claim would be relevant, especially as no records or proof is required. However, looking at employment agencies’ adverts for jobs, more and more employees are (or are expecting to be) working from home. If this is the case, HMRC may find an increase in the number of 'additional household expenses' claims.
