Want to know what tax relief is available when you work from home? Watch our video to learn more.
The Covid-19 pandemic has meant that more employees worked from home than ever before.
The trend looks set to continue following the Government’s latest advice to continue to work from home where you can do so.
In addition, many businesses plan to embrace flexible working beyond the end of the pandemic, allowing employees to work from home some or all of the time where their job allows this.
However, while working from home may save the cost of the commute, there are expenses associated with working from home.
Is the employee able to claim tax relief where these are not met by the employer?
As a general rule, you cannot claim any tax relief if you have chosen to work from home. However, you can claim tax relief if you have to work from home, either due to Government guidance or if required by your employer.
Additional household expenses
As a result of working from home, an employee will incur the cost of additional household expenses, such as additional electricity and gas costs, additional cleaning costs, and such like.
Additional costs include things like heating, metered water bills, home contents insurance, business calls or a new broadband connection. They do not include costs that would stay the same whether you were working at home or in an office, such as mortgage interest, rent or council tax.
During the Covid-19 pandemic, HMRC confirmed that employees are able to claim a deduction for additional household expenses attributable to working from home of £6 per week without supporting evidence.
Where the actual additional costs are more than £6 per week, tax relief can be claimed for the full amount, as long as the employee can substantiate the claim. For example, this could be done by comparing bills prior to working from home with those during the working at home period.
HMRC also confirmed that employees can claim a full year’s allowance of £312 even if they only worked from home for one week in the 2020-21 tax year.
Homeworking equipment
Employees may have needed to buy office equipment, such as a computer and a printer, to enable them to work from home.
Where these costs are not reimbursed by the employer, HMRC have confirmed that employee can claim a tax deduction for the actual expenditure incurred, as long as it was incurred ‘wholly, exclusively and necessarily’ in the performance of the duties of the employment.
Other expenses
To claim relief for other expenses employees will need to pass the general test that the expense was incurred ‘wholly, necessarily and exclusively’ in the performance of the duties of the employment.
Care must be taken to distinguish between expenditure which puts the employee in the position to do their job as opposed to being incurred in the performance of it.
Childcare, for example, would fall into the former category and not be eligible for tax relief. Only expenses incurred in the performance of the work are allowed.
Making claims
Where the conditions for tax relief are met, a deduction can be claimed on form P87 that is available on the Gov.uk website or, where the employee completes a tax return, on the employment pages of the return.
How about the business owner?
If you are the business owner and reimburse the employee the £6 per week, or provide equipment, you can claim tax relief in the business.
The same rules apply to decide whether the expenses qualify for tax relief.
If you pay the employee £6 per week, the business can claim tax relief and the employee pays no tax on the £6.
However, the employee cannot then claim tax relief – the receipt of the £6 is more valuable than tax relief.
I hope that’s useful. If you’d like to know any more, please get in touch with us.