Sarah Bradford outlines the reliefs available for employees who are working from home and how to claim them.
The Covid-19 pandemic saw unprecedented numbers of employees working from home, many for the first time. Changes in working arrangements forced by the pandemic have led many companies to question whether they need their employees in the workplace full-time and whether they can reduce the amount of office space they have.
As the country moves out of lockdown and the ‘work from home if you can’ guidance is relaxed, flexible working looks set to continue; working from home, at least some of the time, is likely to be the new normal.
All change…
Prior to the pandemic, HMRC had historically taken a harsh line as regards allowing employees tax relief for the costs they incurred as a result of working from home. The ‘wholly, exclusively and necessarily’ test that must be met for an employee to be able to secure a deduction for an expense means that for a deduction to be forthcoming, the need to incur the expense must be imposed by the requirements of the job, rather than as a result of choices made by the employee. HMRC’s view was that employees generally chose to work from home, rather than the job requiring them to do so, precluding relief for any additional costs that were incurred as a result of that choice.
The pandemic changed all that. Employees were told to work from home rather than being given a choice. In response, HMRC revised its approach, allowing tax relief claims for additional household costs of working from home, and introducing a temporary exemption for the reimbursement of equipment purchased by an employee to enable them to work from home.
Additional household costs
While working from home will save employees the costs of their commute, on the other side of the equation it is likely that their household costs may rise as a result. Additional lighting and heating, plus the electricity needed to run a computer, may lead to a rise in household bills. If the employee is using their landline for work calls, their telephone bills may also rise.
The tax system previously allowed employers to meet the additional cost of working from home without giving rise to an associated tax cost. Employees who do not receive help from their employer are now able to claim tax relief.
Employer meets additional household costs
A statutory exemption is available where an employer makes a payment to an employee in respect of reasonable additional household expenses which the employee incurs in carrying out the duties of the employment at home, where these are carried out under ‘homeworking arrangements’. These are arrangements between the employer and the employee under which the employee regularly performs some or all of the duties of the employment at home.
Since 6 April 2020, the employer has been able to make a tax-free payment of £6 per week (£26 per month) tax-free to an employee who works at home on a regular basis, without the need for evidence in support of the claim. The tax-free amount is the same irrespective of whether the employee works at home full-time or has flexible working arrangements, working from home one day a week.
The employer can pay a higher amount to cover the additional household expenses of working at home tax-free, but the employee must provide evidence of the actual additional costs incurred.
Tax relief claims for employees
If the employer does not meet the additional household costs incurred by the employee as a result of working from home, the employee is able to claim tax relief, securing a deduction for the costs in the computation of their tax liability.
The relief largely mirrors that for payments made by the employer, and the employee is able to claim tax relief of £6 per week (£26 per month) for the additional expenses incurred as a result of working from home. Again, HMRC will accept claims at this level without the need for evidence of the actual additional costs incurred.
A claim for £6 per week is equivalent to £312 per year. This is worth £62.40 to a basic rate taxpayer, £124.80 to a higher rate taxpayer and £140.40 to an additional rate taxpayer in tax savings.
If the additional household costs incurred by the employee are more than £6 per week, and the employee can demonstrate this, HMRC will allow a higher claim based on the actual additional household costs.
Claiming the relief
Employees can claim the relief online (see here). HMRC is now accepting claims for 2021/22. Relief will be given for the full tax year; employees currently working at home do not need to tell HMRC if they return to the office before 6 April 2022.
Employees who worked at home during 2020/21 and who have yet to make a claim for relief for the additional household costs of doing so can use the online service to make a claim for 2020/21 too.
HMRC will amend the claimant’s tax code to give effect to the claim.
Employees who are required to complete a self-assessment tax return (e.g. because they have other income they need to declare) should make their claim for tax relief in their tax return rather than via the online service.
Flexible working
To claim relief for additional household expenses incurred as a result of working from home, it is not necessary for the employee to work from home all the time; employees with flexible working arrangements can also benefit from the relief. The pandemic forced employers and employees to embrace homeworking, and many are reluctant to return to full-time office working.
Post-pandemic, employees with new flexible working arrangements, whereby they work from home some of the time and in the office some of the time, will be able to claim the full £6 per week tax relief for their additional household expenses.
Homeworking equipment
An existing statutory exemption prevents a tax charge from arising where an employer provides an employee with equipment and supplies for the sole purpose of enabling the employee to work from home. Private use of the equipment does not jeopardise the exemption as long as it is not significant.
Prior to the pandemic, the exemption did not extend to any reimbursement by the employer where the employee purchased the equipment to facilitate homeworking. At the start of the first lockdown, many employees were required to work from home at very short notice. Logistically, it was easier for the employee to order the equipment that they needed and for the employer to reimburse the cost. To address the tax inequality that would otherwise have arisen, a limited-time exemption was introduced for 2020/21. The exemption applies where the employer reimburses the cost of equipment purchased by the employee to enable them to work from home in circumstances such that the provision of the exemption would have been exempt from tax, had it been provided directly by the employer. The exemption has been extended for a further year and applies now for both 2020/21 and 2021/22.
Practical tip
Employees who have been working from home as a result of the Covid-19 pandemic should ensure that they take advantage of the various reliefs that are available to them and, where eligible, submit claims for additional household expenses for 2020/21 and 2021/22 if they have not already done so.
