When And How You Can Pay £4 Per Week To Employees Working From Home

 

Technological advances have made it possible for many employees to work from home. The arrangements may vary – some employees may be permanently based at home, and some may work at home on certain days of the week, while others may work at home on an ad hoc basis. 

 

Where an employee works from home, he or she is likely to incur costs in doing so. As a minimum, employees may incur additional gas and electricity costs to provide light and heat for them to work and to power equipment such as computers and printers. However, the exact nature of the expenses will depend on the type of job which the employee carries out from home.

 

The tax legislation recognises that employees may incur additional household expenses when working from home, and allows the employer to make a tax-free payment to cover the cost of reasonable additional household expenses incurred as a result of the employee working from home. Household expenses are those expenses connected with the day-to-day running of the home. 

 

In order to qualify for the tax-free treatment, the employee must incur additional household expenses in carrying out the duties of the employment under homeworking arrangements. `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 from home. 

 

It is a good idea for the employer to confirm the homeworking arrangements in writing. To qualify for the tax-free payment, the employee must regularly work at home. HMRC take this to mean that homeworking is frequent and follows a pattern. However, it is not necessary for the employee to work at home on the same days each week. If, under the arrangement, the employee works at home two days a week, HMRC will accept that the employee regularly works from home, even if the days vary from week to week.

 

A hassle-free option is for the employer to pay the employee the £4 per week homeworking allowance permitted by HMRC. This is a `no questions asked’ amount, and the employee does not need to keep records showing additional costs incurred in working a home. This amounts to a tax-free sum of £208 a year. The allowance is free of National Insurance contributions too.

 

The full £4 a week is payable even if the employee only works at home one day a week. However, on the downside, the tax-free amount is still only £4 a week if the employee works at home every day.

 

The tax-free allowance cannot be paid to employees who only work at home occasionally, or who take work home in the evenings – there must be a homeworking arrangement in place.

 

Although HMRC will allow employers to pay homeworking allowances of up to £4 per week without the need for supporting documentation, they will accept claims for higher amounts if these are backed up by evidence to show the actual additional household expenses incurred as a result of working from home are higher than £4 per week. This could take the form of bills comparing usage on days when the employee works from home against days when he doesn’t, telephone bills itemised to show work calls, bills for office cleaning, evidence of additional insurance premiums to enable the employee to work from home, and so on.

 

If the actual costs are only a little higher than £4 a week, it may not be cost-effective to undertake the additional record keeping necessary to claim the higher amount.

 

If actual additional household expenses exceed £4 per week, but the employer is only prepared to pay this amount, the employee may be able to claim the excess as a deduction.

 

Employers can pay a tax-free allowance of £4 per week to employees who regularly work from home under a homeworking arrangement without the need for supporting documentation. If the actual costs incurred are higher, the employer can meet these costs tax-free, as long as there is documentation to support the claim.