Tax Reliefs for Homeworking Employees

What payment can employers make to employees to compensate them for using their home as a workplace?

Where an employee is working from home under “homeworking arrangements”, their employer can reimburse the incremental costs incurred by the employee at a flat rate of £6/week or, if records are kept to justify the costs, the actual amounts spent.

“Homeworking arrangements” exist where, under an agreement between the employer and the employee, the employee works at home regularly under those arrangements. The arrangements need not be in writing and they do not need to apply to all employees. While the government is recommending that employees work at home, it is expected that this will be accepted by HMRC as a “homeworking arrangement”.

Most of the costs an employee incurs in relation to their home are incurred regardless of whether they use it for work, for example, mortgage interest, rent, council tax or water rates. These expenses do not increase with use so these cannot be included in the incremental cost of working at home.

However, an employer can reimburse incremental costs such as additional costs of heating and lighting the work area, the cost of business telephone calls or the metered cost of increased water use.

 

As access to technology is essential to effective homeworking, can an employer pay for employees’ broadband costs?

The monthly cost of an employee’s broadband connection does not change with usage so HMRC will not allow a tax/NI exempt reimbursement of broadband costs.

 

What equipment or facilities can be made available to employees without creating a tax problem for them?

There are certain essential items that employees need from their employers to enable them to work from home.

The ownership of these items remains with the employer but they are made available to the employee to use in their home.

There is no tax or NI where an employer provides their employees with supplies and services that:

  • are provided for the sole purpose of enabling the employee to perform the duties of the employment, and
  • the employee uses in performing the duties of the employment, and providing any use for the employee’s private purposes is not significant.

For example, this exemption covers the provision to employees of:

  • office furniture and equipment such as a desk or office chair;
  • stationery and normal office or workshop materials and supplies;
  • an additional home telephone line intended for business calls only;
  • a laptop computer or other computer equipment;

This exemption cannot be used to apply to building work carried out on the employee’s home or the construction of a home office in the garden.

 

What if employees have paid for heating, lighting and other homeworking costs that the employer is not going to reimburse.
Can an employee claim any tax relief for these expenses they have incurred?

Employees can claim a tax deduction for expenses that are “wholly, exclusively and necessarily” incurred in the performance of their duties of employment.

For a 20% taxpayer, a claim of £1,000 of expenses will give them a £200 tax refund. For a 40% taxpayer, the refund increases to £400.

If the employee does not complete a tax return and the expenses being claimed are less than £2,500 in a tax year, the claim can be made on a form P87. This can be done online at https://www. gov.uk/guidance/claim-income-tax-relief-for-youremployment-expenses-p87

If the employee does complete a tax return or is claiming more than £2,500 in a tax year, the claim will need to be made on a tax return.