Tax relief for home working expenses

The ongoing Covid-19 restrictions pose many challenges for businesses to safely accommodate their workforce back in the office space, as we head into the autumn and winter periods. With many employees still working either fully or partly from home, it’s worth a timely reminder of some of the key opportunities for employers to help their employees working remotely tax efficiently, as we all become accustomed to this new way of working:

 

IT and office equipment

Working solely from your office laptop for long periods is not a healthy long-term solution. Many new home workers are now creating a more appropriate, longer-term home office setup with additional monitors, keyboards, even desks and chairs. So what are the tax rules for buying this new kit, and does it matter who pays for it?

As is probably expected, any employer-provided computer/IT equipment and associated office supplies is not taxable on the employee, provided any private use is insignificant.

In May, HMRC introduced a new temporary exemption from tax and NICs to enable employers to reimburse employees who have had to buy home office equipment or supplies themselves to enable them to work from home as a result of the Covid-19 restrictions. This special exemption applies from when the lockdown began on 16th March through the end of the current tax year on 5th April 2021.

But given the current challenging business environment, many employers might not have the cash to fully reimburse their employees. This means employees will need to see if they can claim tax relief on their own costs and the rules are not as clear-cut:

Claiming tax relief personally for IT equipment is more likely to qualify as being necessary and required to enable the employee to perform their duties.  But claiming relief on office furniture such as desks and chairs will be more difficult, as it could easily be argued that they are putting the employee in a (more comfortable) position to do their duties, rather than being used in the actual duties themselves.

 

Mobile phones and home broadband

Company-provided mobile phones are not a taxable benefit, regardless of the amount of private use (limited to one mobile phone per employee). But the tax treatment is different where an employer is looking to pay a contribution towards the cost of an employees’ personal mobile phone bill or home broadband costs. Most mobile and broadband packages are bundled with inclusive (sometimes unlimited) calls, texts and data and so are on a fixed monthly charge – this means that there is no additional cost for any business usage.

So any payments to employees towards the cost of their own mobile or broadband to work from home is simply taxable as additional earnings. Often a grossing-up calculation is needed to provide the employee with a required net amount, which is not very tax efficient.

 

Home working allowance

Employees who have been working from home over the past few months may well have saved on commuting costs, coffees and lunches. But they will have seen a correspond increase in their household bills.

Where a business requires an employee to work from home due to Covid-19 lockdown/restrictions, they can pay a home working allowance to cover some of the extra costs incurred whilst working at home (e.g. electricity and heating).

HMRC allows a payment of up to £6 per week (£26 a month) to be paid free of both tax and NIC (an increase on the previous rates of £4 per week/(£18 per month prior to 6th April 2020), making this approach much simpler and a more tax and NIC efficient option than paying towards personal mobile/broadband costs on a grossed-up basis. If an employer cannot pay the allowance, the employee can still claim tax relief on this amount.

Key to claiming tax relief here is that the employee must be working at home because they are required to, not out of choice. This means that the employee is regularly performing some or all of their duties from their home.

The £6 per week rate has been set by HMRC as considered reasonable for most people, and without the need to keep detailed records. It is possible to claim more than £6 a week, but the employee would need to keep paperwork to support their claim.

Finally, it’s worth noting that an employee can’t claim for other home-related costs that don’t increase because they are now working there – such as council tax, mortgage interest or rent, or water (unless they have a water meter and keep records to claim more than the simple £6 per week).

 

How to claim the tax relief

Employees who file an annual Self Assessment tax return can claim relief via that. For most other employees, they can simply complete submit a P87 Form via the HMRC website or send a postal version.

If you would like to know more, please contact us at support@garbutt-elliott.co.uk.