The Tax Benefit Of Working From Home
When lockdown started it forced many workplaces to close their doors, and resulted in a record number of people working from home. For some employees there will have been savings on travel, but for most this will have led to additional household expenses. HMRC have recently issued new guidance on what expenses are taxable if your employee is working from home due to coronavirus and the fixed rate expense claims that can be made by employees.
Employers can give an allowance to their employees to reimburse them for the additional household costs as a result of working from home. If eligible for the allowance, it will be free from tax and national insurance and the employer will have no reporting obligations. The allowance is currently £6 per week, an increase from £4 per week prior to 6 April 2020. To be eligible the employee must be working from home because they have to, not out of choice. For example, where the office is closed or the employee is having to self-isolate due to coronavirus. Employers can pay higher amounts than the weekly allowance, however their employees will be required to produce receipts to evidence the additional costs incurred. Providing the amounts reimbursed does no more than meet the employee’s additional costs, this will also be tax free. Prior to lockdown, the working from home allowance would only be made to employees where a contractual working from home arrangement was in place.
Employers can still provide equipment and supplies to employees working from home and providing these are used for business use only, or the private use is insignificant, then this will be tax free. If the employer transfers ownership of the equipment to the employee, then this will become an employee benefit and a tax charge may apply. Under new temporary guidelines employers can reimburse employees the full cost of office equipment if they had to purchase the equipment to enable them to work from home. This will need to be agreed in advance and providing there is no significant private use, this will also be non-taxable. The guidance states that the equipment will belong to the employee unless the employer has specified that the ownership should be transferred to them. In this case, there will be no benefit charge for the employee if allowed to keep the equipment as it already belongs to them.
In this current climate, employers may not be in a position to reimburse employees for the additional cost of working from home. It was announced that employees can make a claim for a tax deduction of £6 per week for each week they are working from home from 6 April 2020, or £4 per week for earlier periods, without having to justify the cost, previously they were not permitted to make a flat rate claim for homeworking expenses. Employees can still make a claim for more if the additional cost is higher than the flat rate amount but the claim would need to be evidenced by receipts.
Employees who are within the self-assessment regime can make a claim through their tax return while employees who don’t, can submit a P87 form either online or by post. You can download the P87 form