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Working from home: Tax relief for employees
Employee's working from home ~ available to claim tax reliefs !
The reliefs available outlined 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. The 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.
Prior to the pandemic, HMRC had historically taken a harsh line with respect to allowing employees to claim tax relief for the costs they incurred because of working from home. The test that must be met for an employee to be able to secure a deduction for an expense means that deductions to be forthcoming, the need to incur the expense must be imposed by the requirements of the job, rather than because 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 because of that choice.
The pandemic changed mostly everything with employees told to work from home rather than being given a choice. As a response, HMRC revised their approach with 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.
The addition of household costs
Whilst working from home is saving employees the costs of travelling, it does however meet the equation of rising household costs. This is due to additional lighting and heating, plus electricity needed to run computers which may result in a rise of household bills. This also includes the use of landline and mobile bills used for work calls which could rise sharply.
The tax system previously allowed employers to meet 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 meeting 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, this is under the ‘homeworking arrangements’.
The tax-free amount is the same regardless 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 extra costs.
Employees claiming tax relief
If the employer does not meet the additional household costs incurred by the employee because 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.
Since 6 April 2020, the employer has been able to make a tax-free payment of £6 per week equivalent to £26 per month and £312 per year to an employee who works at home on a regular basis, without the need for evidence in support of the claim. 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 at www.gov.uk/tax-relief-for-employees/working-at-home. 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.
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 should make their claim for tax relief in their tax return rather than via the online service.
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 costs.
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 if 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.