During the Covid-19 pandemic, many businesses had to change to remote working at short notice. For some, this may represent a new way of working for the future.
Although homeworking may save an employee’s commuting costs, other expenses may be incurred, such as the cost of making business telephone calls from an employee’s landline or mobile phone, or the extra cost of electricity or gas for the employee’s work area at home.
As an employer, if you require an employee to work from home, either permanently, or temporarily due to Covid-19, you can choose to make a tax-free payment to your employee, in addition to their salary, to cover the additional household expenses incurred as a result of working from home. The tax-free exemption covers payments of up to £6 per week, or £26 per month (an increase from £4 per week, or £18 per month, prior to 6 April 2020). If you wish to reimburse your employee with a higher amount, the excess is subject to income tax and National Insurance in the same way as salaries.
It is up to an employer to decide whether they wish to make these payments, but if the employer doesn’t, the employee can claim tax relief from HMRC for the additional costs. The employee can either claim the flat rate of £6 per week (for a basic rate taxpayer, this would save £6 x 20% = £1.20 tax per week), or, if the employee wishes to claim a higher deduction, they would need to keep records of the actual costs incurred, and how these have been apportioned between employment and personal. These costs must be incurred ‘wholly, exclusively, and necessarily’ for the performance of employment duties, so this may include the cost of making telephone calls in relation to employment duties, but not the cost of line rental which would be incurred personally anyway, regardless of employment.
If an employee agrees with their employer to work at home voluntarily, or the employee chooses to work from home, the employee cannot claim tax relief on their bills.
If you are self-employed, you may already claim a proportion of your household bills for your office. Alternatively, HMRC allows sole traders and partnerships (with no corporate partners) to use ‘simplified expenses’, based on the number of business hours use of your home per month. If you work from home for 25 to 50 hours per month, you can claim a flat rate deduction of £10 per month (deducted from business profits), increasing to £18 per month for 51 to 100 hours business use per month, and £26 per month for anything over 100 hours per month. The flat rate doesn’t cover telephone or internet expenses, for which sole traders and partnerships can claim the business proportion of these bills.
Contact us for further details or to discuss any other income tax matters.