Sarah Laing looks at expenses that may be claimed by employees required to work from home, including a new temporary exemption due to the coronavirus (Covid-19) pandemic.
HMRC has increased the amount of the existing flat rate tax deduction, which is available for employees who incur additional household costs because they work at home under homeworking arrangements.
From 6 April 2020, the allowance has increased from £4 per week to £6 per week, which equates to £312 a year.
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 at home.
There is no requirement for any part of the employee's home to be used exclusively for the purposes of the employment; in fact, if any part of the home is used exclusively for work, problems could arise on the future sale of the house, as part of the capital gains tax exemption on private residences may be lost.
HMRC has stated they 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 HMRC guidance also advises:
‘[T]he 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. It applies where an employee works at home by arrangement with the employer instead of working on the employer's premises.’
HMRC accepts that the ‘regularly’ condition is 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.
Reasonable household expenses
‘Household expenses’ are defined as expenses connected with the day-to-day running of the employee's home. The exemption applies to additional household expenses, and HMRC have given the following guidance:
‘Typically this will include the additional costs of heating and lighting the work area or the metered cost of increased water use. There might also be increased charges for Internet access, home contents insurance or business telephone calls. Where working at home leads to a liability for business rates the additional cost incurred can also be included.
The additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment.’
Coronavirus support
The government has introduced a temporary tax exemption and National Insurance contributions (NICs) disregard to ensure that home office equipment purchase by employees as a result of the coronavirus outbreak, will not attract tax and NICs liabilities where reimbursed by the employer. This measure will apply for 2019/20 from 16 March 2020 only, and for the 2020/21 tax year.
To be eligible for the exemption the expenditure must meet the following two conditions:
- The equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak; and
- The provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer.
Practical tip
If an employer wishes to pay more than the guideline rate of £6 per week tax-free, it is recommended that the employer should agree a scale rate in advance with HMRC. Failing that, records will need to be kept of the actual additional costs incurred by each employee.
