Research has found that around 60% of the UK’s adult population are currently working from home during the coronavirus lockdown. Working from home has become normal for millions of employees as they embrace video conferencing and the home office as a new way of doing business.
If you are working from home, it is worth remembering that not all expenses incurred from home working can normally be reimbursed tax-free. Here is your complete guide to the tax implications of working from home.
The rules for claiming home-working expenses
The general rule is that expenses can be paid provided an employee can demonstrate that two conditions have been met, and that the employee has sufficient evidence to support the claim.
These two specific conditions are:
- The employee is obliged to incur and pay the home-working expenses as a holder of the employment.
- The home-working expenses are incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
If these conditions have been met, an employee may claim a proportion of certain household expenses, provided the employer agrees, without incurring any Income Tax or National Insurance on the payment.
The Home Working Allowance
As an alternative to the above, HMRC allows a Home Working Allowance to be claimed that does not require the need to keep detailed records.
With effect from 6th April, this allowance is £6 per week (prior to 6th April 2020 it was £4 per week). This allowance can be paid to employees for additional household expenses incurred while working from home, tax-free.
In the event that an employer does not reimburse qualifying costs, tax relief may be claimed, by the employee, directly from HMRC.
An employee can claim the £6 home working allowance without any detailed records but if a claim is made for costs totalling more than £6 per week detailed supporting information will be required to justify the claim.
It is important to note that expenses can only be claimed tax-free if the employee is required to work from home. If it is a voluntary arrangement, then no expenses can be claimed tax-free.
Note that the closure of an office as a result of the coronavirus will mean that an individual is ‘required’ to work from home.
You cannot claim for household expenses you would be paying for anyway, such as rent or mortgage payments. Relief also doesn’t cover expenses that relate to both business and private use, for example broadband and telephone line rental.
Equipment and facilities
In an addition to those costs incurred from home working, it is likely that an employer will provide some equipment to enable an employee to work from home.
This might include, for example, a computer, printer, and the provision of office furniture. The provision of this equipment will be exempt from tax provided two conditions are met:
- The use of the facilities for private purposes by the employee or members of his family or household is not significant.
- Where the provision is other than on the employer’s premises, its sole purpose is to enable the employee to perform the duties of the employment.
Where an employee has a desk, laptop computer, and various consumables provided for the performance of their duties, this is very unlikely to incur a tax charge.
Under normal circumstances, the guidance makes it very clear that the exemption only applies to the provision of these facilities by the employer, and not to the reimbursement of expenses by the employee nor to the payment of bills in the employee’s name.
The exemption applies solely to the provision by an employer of such facilities, if appropriate, under a contract in the employer’s name and not if they employee purchases the equipment themselves and this is then reimbursed by the employer.
Temporary changes during the coronavirus pandemic
In a further change to the regime, a temporary measure has now been announced that covers the period 16th March 2020 until 5th April 2021.
This temporary Income Tax and National Insurance contributions exemption will ensure that no tax liability arises where employers reimburse employees’ personal expenditure on home office equipment arising from arrangements to work from home during the Covid-19 outbreak.
To be eligible for the exemption the expenditure must meet the following two conditions:
- That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak.
- The provision of the equipment would have been exempt from Income Tax if it had been provided directly to the employee by or on behalf of the employer.
Get in touch
If you have any questions regarding the tax implications of home working, please get in touch with your usual RPG contact or call us on 0161 608 0000.
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