More than two years on from the end of the last Covid lockdown, working from home has become the norm in the UK. Studies show that, in 2019, about 12% of UK employees were working from home. However, by 2022 it was between 25% and 40%. As of June 2023 in the UK, 10% of employees worked from home all of the time, 29% worked from home some of the time, and 10% didn't work from home but had it as an option.
While the government made temporary changes to homeworking reliefs to account for Covid-19, most of these came to an end on 5th April 2022. We have, in essence, returned to the pre-pandemic rules for tax relief.
What has changed, however, is our working patterns and the number of hybrid workers. The challenge this poses for employers and employees is how and when you can benefit from work from home tax relief. In this article, we'll provide an overview of employee reimbursements of homeworking costs, claiming tax relief as a homeworking employees, and the specifics of home expense exemptions.
Overview
Since 2003, employers have been able to make tax-free payments to help employees cover their reasonable additional expenses incurred while working from home. This means that employers can make tax free payments for their work-from-home employees.
As an employer providing homeworking expenses for your employees, you have certain tax, National Insurance, and reporting obligations.
Homeworking expenses include equipment, services or supplies you provide to employees who work from home, such as computers, office furniture, printer, paper, pens and internet access.*
It also includes additional household expenses, such as gas or electricity charges and additional insurance for employees who need to work from home.
* In terms of home broadband, if the employee already has an internet connection in place, you cannot reimburse the cost tax-free. However, if the employee does not have internet and needs one to work, it can be reimbursed.
Home Expenses Exemptions
It is generally accepted that working without the proper equipment can lead to long-term issues, such as back pain. Thus, homeworkers will often required additional equipment, such as monitors, keyboards, desks and an ergonomic chair in order to have a safe, healthy and functional office space.
If you provide equipment, services and supplies to an employee who works from home, you do not have to report or pay tax if:
- They’re only used for business purposes.
- Any non-work use (‘private use’) is insignificant.
This includes office furniture and equipment, such as desks and filing cabinets, stationary or materials and supplies, laptops, tablets and computers, mobile phones and a SIM card.
If the employee does use the equipment for private use, they may become liable to pay income tax and national insurance on the assets received.
This also doesn't cover the extension, conversion or alteration of any living accommodation, or the construction or alteration of any building or structure on land adjacent to living accommodation and enjoyed with it. In other words, costs incurred for establishing a work from home workspace - such as loft conversion to create an office - are excluded.
Additional Household Expenses
If you cover the cost of additional household expenses for an employee who works from home, such as gas or electricity charges, you do not have to report or pay tax if:
- Employers work from home as agreed with you and they regularly work from home under those arrangements. The work from home can't be informal or outside of normal working hours, such as in the evenings or on weekends. The arrangements don't need to be in writing, but usually will be.
- The amount you give them is not more than their additional household expenses or the amount you give them is not more than the current weekly limit. Costs must relate to the work area of the home. Costs that are the same whether or not you work at home cannot be included, such as rent, council tax and water rates.
Employers can pay up to £6.00 (or £26 a month for employees paid monthly) without evidence of additional working costs, but if you cover any costs over that, you will need to prove that the payments are no more than your employee’s additional household expenses.
Employees can claim tax relief for home working expenses that were not reimbursed by their employer, however this is quite rare and HMRC are unlikely to provide relief - especially in cases where the employee chooses to work from home.
Self-Employed
If you’re self-employed, your business will have various running costs. You can claim some of these costs as allowable expenses. This includes office costs, such as office equipment or phone bills, travel costs, clothing expenses, staff costs, things you buy to sell on, financial costs, costs of business premises, advertising or marketing costs, and training courses.
You may also be able to claim a proportion of costs for things like heating, electricity, council tax, mortgage interest or rent and internet use if you work from home.
You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’ and you should contact the self assessment helpline if you're unsure what costs are allowable expenses.
COVID-19
If you supplied employees with office equipment so they could work from home during coronavirus, you do not have to pay tax on this as long as they return the equipment to you.
You can report any expenses or benefits related to COVID-19 on your PAYE Settlement Agreement.
Date Published: March 12, 2021
Last Updated: February 26, 2024
