Working from home has increased throughout the years. This pandemic has welcomed working from home all over the world. Employees that are home working may face certain expenses that their employer may reimburse. If the employer does not reimburse these costs, the employee will have to see if tax relief is available.
Employers are now able to make tax-free payments to help employees cover additional expenses incurred whilst working from home. These payments are not subject to either income tax or national insurance.
To be eligible for this reimbursement, the employee must be carrying out their tasks under home arrangements. This should be some or all their work responsibilities at home.
HMRC has a clear guideline on what expenses can be reimbursed. If an employee has a regular work pattern such as working at home for an X number of days during the week, this will be accepted as working from home. The days chosen to work at home can vary but there should be a consistent pattern.
However, if you decide to take your work home for the evening, this will not be accepted. You will not be able to claim a reimbursement for any costs. There must be a clear agreement to work at home instead of the work locations.
COVID-19 Update: During this pandemic, if an employer’s office is closed or you have been advised to self-isolate, HMRC will accept that you are working from home. Employees will now be eligible to receive the allowance tax free from the period approved by their employer or when the government advice was declared.
The reimbursement can only cover certain employee expenses as stated by the HMRC guidance. There are usually two core approaches:
This follows as:
This is a fixed rate and beneficial to both employers and employees. Employers do not have to explain these expenditures and employees do not need to keep a record of their additional costs.
If the flat rate is not considered acceptable then a larger amount can be paid if there are clear proof to claim these expenses.
These costs can only be claimed if they are an additional cost to you whilst working from home. If working at home will have no impact on your home expenses, these cannot be claimed. Some costs that you cannot claim are:
Internet and broadband can be a confusing one. HMRC states that if an employee already has internet as a regular existing expense, this cannot be claimed. However, if you start working from home and you have no internet, and this is a requirement. This will be served as an additional cost and this can be claimed. Similarly, landline would work in a similar manner to broadband.
An employer may not choose to reimburse some, or all the additional expenses acquired from working from home. This means the employee is not automatically allowed tax relief on their extra costs. Tax relief is given to costs that are exclusively for the employee's employment.
Tax reliefs can only be claimed if an employee can meet certain requirements:
COVID-19: For employees working from home due to the outbreak, condition one and two should be easily met. However, condition three could cause implications for employees seeking tax relief if HMRC do not consider this met.
An employee who can prove that their home is also their workplace can claim tax relief for these expenses:
Costs that they cannot claim include:
Laptops are convenient however, in the long term, they might not be as comfortable. They may cause discomfort resulting to equipment purchases such as desktops, monitors and keyboards.
If an employer has purchased the essential equipment and it is not used by the employee for private use, the employee has no taxable benefit.
Due to the current outbreak, employees may have purchased their own equipment. Employers may have recommended this and offered to reimburse the cost. However, the reimbursement of these employee expenses will be taxable to the employee even if they solely use it for their employment. Employees will struggle to attain tax relief under capital allowances for any cost of the equipment.
One solution to the employee purchase of office equipment is for the employer to settle the tax receipt once their employee has been reimbursed by including it in a PAYE settlement agreement. On the contrary, this will result in an increase in administration and cost for the employer.