Unfurloughed employees will be able to claim most expenses without incurring any charge
Under standard tax rules, the following applies to employees working from home.
1. You are required to work from home
If you are employed on the basis that you work from home and working from home is written into your contract, or you have no choice but to work from home:
- Costs reimbursed by the employer are made tax and NIC free for reasonable incremental costs related to working from home.
- Reimbursement is made based on actual expenditure based on records or a flat rate of £6 per week from 6 April 2020 (£4 per week up to 5 April 2020).
2. You have a home-working arrangement
If you are not required to work from home, but work from home regularly as part of an arrangement with your employer, the arrangement does not need to be in writing and may not apply to other employees:
- Costs reimbursed by the employer are made tax and NIC free for reasonable incremental costs related to working from home on actual or flat rate basis.
- Unreimbursed expenses cannot be tax relieved – you cannot deduct them from your income
- No relief is available for expenses incurred for both business and private purposes.
3. You work from home on an ad hoc basis, informally and occasionally
- No relief is available for expenses, whether reimbursed or not.
Reimbursed household expenses that fall within the exemption include additional (incremental) costs of heating and lighting the work area, increased water use, additional household insurance or additional internet costs. However, costs that do not vary whether the employee works at home or not, such as mortgage payments or rent, fall outside the scope of the exemption.
The employer may also provide the employee with office furniture, stationery, office materials or computer equipment needed to carry out employment duties.
No tax liability arises on the employee if:
A Private use of items provided by the employer is not significant.
- Employer’s policy on private use is made clear to the employee.
- Employer’s decision not to recover value corresponding to employee’s private use is due to practicality rather than aimed at providing additional reward to the employee.
B Items are provided by the employer to enable the employee to perform employment duties and are not an excluded benefit (broadly: motor vehicles, boats, aircraft, alterations made to living accommodation such as loft conversion or construction of a separate office).
Impact of Covid-19
HMRC announced that employees working from home due to the pandemic will be treated as required to work from home (see point 1 above). This applies if:
- your workplace has closed or
- you are following advice to self-isolate.
Section 316A ITEPA 2003, which provides the basis for the tax exemption in relation to reasonable additional household expenses, is not time-limited, so will apply to work-from-home arrangements irrespective of how long they remain in place.
The following applies in relation to specific expenses when working from home:
A. Reimbursed expenses that are not taxable (not reportable):
- Mobile phone and SIM cards irrespective of private use, one per employee
- New broadband connection installed due to working from home – subject to insignificant private use
- Laptops, tablets, computers, and office supplies - subject to insignificant private use
- additional gas, water, and electricity – not taxable as long as incremental to working from home
- costs of private car use – not taxable if paid at tax-free mileage allowance rates, or reclaimable via self assessment if not reimbursed by employer
B. Expenses taxable if reimbursed (not tax deductible if not reimbursed) – reported via PAYE settlement agreements (PSA):
- office equipment (such as desk, lighting equipment etc)
- temporary accommodation provided if employee cannot self-isolate at home.
Even though there is no requirement to formalise working-from-home arrangements brought on by Covid-19, it is best practice to have a written agreement in place, stipulating how the arrangement will work, the equipment and supplies to be provided by the employer and any expenses that will be met.
More information can be found here.