Guidance for Employers
Since March 2020, as a result of the COVID-19 pandemic, many employers have closed their workplaces which means that most employees are now required to work from home.
Employers are permitted to reimburse employees for reasonable additional household expenses incurred as a result of working from home.
The employee must be working at home under ‘home-working arrangements’, which is a formal agreement for the working days and times at home, or arrangements specified under the current lockdown.
The Employer can either meet the actual additional costs (which may be quite difficult and time-consuming to identify) or can pay a tax-free flat rate of £6 per week to cover the additional costs.
An Employer cannot reimburse fixed costs that would be incurred regardless of whether the employee works at home or not, such as rent or mortgage interest or any expenses that allow the employee to work from home, such as buying a desk or chair.
Guidance for Employees
As an employee, if you are required by your Employer to work at home, you can (and always have been able to) claim for increased costs due to working from home.
Subsequently, employees are eligible to claim if you've had increased costs due to working at home. HMRC have specifically confirmed that claims for employees working at home due to COVID-19 measures do qualify (i.e. if your usual workplace office has been or is closed).
There are two main options:
· Employers can pay employees £6 a week as a tax free allowance (noted above)
· Employees can claim tax relief on £6 a week.
The most common situation is likely to be the second option above, where the Employer won’t pay any expenses to the employee but the employee can make a claim to have the amount of £6 deducted from their taxable income.
Tax relief of £6 a week equates to a gain of £1.20 a week for a basic 20% rate taxpayer (£62.40 per year), £2.40 a week for a higher 40% rate taxpayer (£124.80 per year).
If you believe you have higher increased costs than £6 a week, you can claim more, but you will need evidence of the cost increases and be able to apportion these specifically to the fact you are working from home – and this becomes a much more laborious process.
HMRC have also confirmed that employees who are required to work part-time at home can still claim the full £6 allowance (whether as a payment from their Employer or a tax deduction) and you too can claim for the entire 2020/21 tax year.
How to claim?
Please note that those who are employed but submit a Tax Return via Self-Assessment each year cannot claim online, but instead you can make the claim within your Tax Return.
For employees who are not in Self-Assessment, applications can be made via the HMRC website, but you will need to have your Government Gateway ID to do it. If you don't have one, you can create one as part of the process.
Claim tax relief for working at home
Once your application has been made, it will automatically apply the whole 2020/21 tax year's relief via your tax code.
You can use it to make a claim since lockdown started on 23 March 2020, which will include the final two weeks of the 2019/2020 tax year. Please note that the rate in 2019/2020 was £4 per week, which was increased to £6 from 6 April 2020 onwards.
Please note that it is unlikely that you’ll receive a cheque or cash refund, as the tax relief is applied via your tax code, which will then reduce the amount of your income that will subject to tax for the rest of the tax year.