Employees who have to work from home on a regular basis may be able to claim tax relief for the additional costs of working from home. As accountants we are often asked this question.
Typically this might include the cost of business phone calls (but not the cost of the underlying rental charge, since that would be incurred whether or not the individual works from home); and the extra cost of gas and electricity for the work area.
Claims cannot be made in respect of things that are used for both private and business purposes, like rent, mortgage interest, or council tax.
In the current climate, many employees are working from home because of a requirement imposed by their employers; therefore we expect many more employees will be able to claim relief on home working expenses.
Employers may or may not reimburse employees for the costs of home working - that depends on the terms of employment. Where the employer does not reimburse the additional costs of home working, the employee may be able to make a claim for tax relief directly to HMRC. Let's examine the options...
If the employer reimburses home working costs
Employers are able to make tax-free payments to help employees cover their reasonable additional costs of working from home where they "regularly perform some or all duties at home". Informal working at home will not qualify.
Employers may pay a "flat rate" of £4 per week (rising to £6 per week from April 2020) with no requirement for the employer or employee to keep detailed records of the expenditure incurred.
Alternatively, a larger tax-free amount can be paid to an employee subject to provision of evidence of the additional costs. Either a scale rate may be agreed with HMRC on an annual basis; alternatively, the employer can reimburse the actual costs incurred by the employee; detailed evidence must be retained of the costs incurred.
If the employer provides office equipment
Employers can also provide office equipment and office furniture to employees where this is necessary to enable them to perform their duties at home. This can be done tax-free provided the sole purpose is to enable the employee to perform their duties and any private use is "insignificant".
If the employer does not reimburse home working costs
Where an employee is not reimbursed by their employer for the additional costs of home working, they may claim tax relief for those costs provided they are incurred "wholly, exclusively and necessarily for the employee's work".
The employee can file a claim with HMRC online, by post, by phone, or, if they are registered for Self Assessment, on their tax return.
To make a claim successfully, the employee needs to be able to show that:
- they perform substantive duties at home;
- the duties require the use of appropriate facilities at home; and those facilities are not available at the employer's premises;
- the employee was not able to choose between working at home and working at the employer's premises
Where it is not practical for the employee to calculate the allowable extra costs, they may instead claim the "flat rate" of £4 per week (again, rising to £6 per week from April 2020). The flat rate does not cover the cost of business phone calls, which may be claimed separately.
Contact us with any questions or if we can assist further.