Homeworking is pretty much the norm for most workers at the moment due to the coronavirus pandemic.
But even before the outbreak, around 4 million people were working from home in some form, according to the ONS.
HMRC is increasing the maximum flat-rate tax allowance for those who work from home under ‘homeworking arrangements’.
This means employers are able to make payments of £6 a week to help cover ‘reasonable household expenses’ without supporting evidence.
For those paid monthly, the payments without tax liability are £26 a month.
Employees are not taxed on these payments, which were previously limited to £4 a week and £18 a month.
The payments are discretionary and employees do not need to keep records of the payments.
These arrangements are between the employee and the employer under which the employee regularly performs some or all of their work at home.
There is no requirement for employees to dedicate any part of their home exclusively for work. In fact, doing so could result in problems for future sales of the house as part of the capital gains tax exemption on private residences may be lost.
According to HMRC, they will accept home working arrangements where:
- There are arrangements between the employer and the employee
- And the employee works at home regularly under these arrangements
The arrangements do not need to be in writing, although they usually will be. Employers do not need to apply them to all employees.
Allowances do not apply where an employee works at home informally and not by arrangement of the employer. So, if one of your employees takes work home in the evenings they cannot request payments.
HMRC says the exemption “applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises”.
They accept that the condition of ‘regular’ homeworking is met if working from home is frequent or follows a pattern. The fact days spent at home may vary week from week is not a bar to claiming the exemption.
What are reasonable household expenses?
Working from home leads to additional costs, such as heating, lighting the work area and the increased use of water if your water is metered. There may also be extra charges for internet access, home contents insurance or business telephone calls.
If working at home leads to a liability for business rates the additional costs that are incurred can be included.
HMRC says, “Additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home.”
So, rent, council tax and mortgage payments will not be included, for example. It also excludes expenses “that put the employee into a position to work at home”. That means the employee cannot claim for making alterations at home to provide a home office or for any furniture or office equipment.
The new rate
Since 6th April, employers can pay £6 per week without supporting evidence of the costs the employee has incurred. These payments can be made without supporting evidence of the costs incurred.
If employers pay more than that amount, the exemption is still available. But they must provide supporting evidence that the payment is wholly in respect of additional household expenses incurred by the employee in carrying out their duties at home.
Those employers who want to pay more than the guideline rate per week tax-free should agree on a scale rate in advance with HMRC. If they do not, records need to be kept of the costs that are incurred by each employee.
HMRC has issued guidance for those employees working from home and the tax relief they can claim on their website.
Guidon Group clients who want to clarify their position can contact us by email or phone.