I have recently returned to work after a number of maternity leaves and I have agreed with my employer that I can work from home. What are the tax implications for me of working from home?
Over recent years, home working has become increasingly common. Employees working from home may incur additional costs and their employer may be willing to reimburse their costs. If this is not the case, then the employee will need to see if tax relief is available.
Employer reimbursement of costs
Employers are able to make tax-free payments to help employees cover their reasonable additional expenses incurred while working from home. Eligible payments are not subject to either income tax or national insurance.
To be eligible, the employee must be carrying out the duties of their employment under homeworking arrangements. This means that employee is regularly performing some or all of their duties at home. HMRC guidance notes that they will accept an employee is working at home regularly where it is frequent, or follows a pattern, such as working at home for two days of every week. In the example of an employee working two days a week at home, HMRC will still consider it to be regular even if the employee varies the days which they work at home each week.
Informal working at home which is not by arrangement does not count as homeworking – for example taking work home in the evenings will not qualify the employee for tax-free reimbursement of costs. There must be an arrangement to work at home and not at the employer’s premises, and it is good practice for this to be in writing.
The reimbursements can only cover reasonable additional costs incurred by the homeworking employee. There are two main approaches.
Firstly, the employer can pay a fixed £4/week (or £18/month for monthly paid employees). The advantage of paying at this rate is that there is no need for the employer to justify the expenditure and the employee does not need to keep records of their additional costs.
If the flat-rate is not appropriate, then a larger tax-free amount can be paid subject to provision of evidence for the additional costs. There are two ways to do this. The first is to calculate a scale rate payment which reimburses the average additional costs of working at home. It is possible to agree to increase this annually. Once the scale rate has been established, then employees are not required to keep subsequent evidence of costs.
Alternatively, the employer can reimburse the actual costs incurred by the employee. Allowable costs include:
- additional heating and lighting costs
- additional insurance
- telephone or internet access charges
- business rates (if applicable)
- Costs that would be the same whether or not you work at home eg mortgage interest or rent cannot be included.
For costs such as broadband internet connection, HMRC say that if the employee is already paying for a connection before starting working from home then this is an existing expense and cannot be reimbursed tax-free. If, however, the employee is not connected to broadband and needs a connection to work from home, then this would qualify as an additional cost which the employer could reimburse tax-free.
The same principles will apply for the cost of a domestic landline rental. Only additional costs incurred by the employee as a result of homeworking can be reimbursed by their employer tax-free.
The employer is also not permitted to reimburse tax-free any costs that put the employee in a position to work at home such as building alterations. However, the employer can provide office equipment and office furniture. These would be tax-free benefits in kind.
Employee seeks tax relief
If an employer does not choose to reimburse some or all of the homeworking employee’s extra expenses, then the employee is not automatically allowed tax relief on their extra costs. Tax relief for extra costs is only given if such costs are incurred wholly, exclusively and necessarily for the employee’s work. In order to claim tax relief, the employee must show that their home is a workplace. HMRC will accept that a home is a workplace where:
- The employee performs substantive duties at home.
- The duties require the use of appropriate facilities and such facilities are not available to the employee on the employer’s premises. (Or the employee lives so far away from the premises it is unreasonable to expect them to travel there on a daily basis.)
- At no time before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.
An employee who can show that their home is a workplace can claim relief for the following expenses which, with the exception of insurance, are very similar to the costs that can be reimbursed by their employer above.
Where, as is often the case, it is not practical to calculate the allowable extra costs, then a claim for £18 per month for monthly paid employees (£4 per week otherwise) can be made without having to justify the figure. This does not cover the cost of business calls, for which an additional claim can be made based on actual costs.
An employee can make a claim online, or, if they are registered for self-assessment, through their tax return.
The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.