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09 June 2020

Working from Home Arrangements and Tax – What you Need to Know

Tax Tips – Business Question:

I closed my offices in the middle of March due to the Covid-19 crisis and my six office-based staff have continued to carry out their work from home. Are there any tax implications for them or me from working from home?


‘Where an employee works regularly from home under agreed ‘homeworking arrangements, their employer may pay up to £6 per week tax-free from 6 April 2020 without requiring supporting evidence of the cost.’ says Director Malachy McLernon

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If the employer pays more, then they must either:

  • keep supporting evidence to show that the payment is wholly for additional household expenses incurred by the employee in carrying out the duties at home, or
  • seek an arrangement with HMRC whereby they can pay a higher amount without a need to keep supporting evidence, or
  • tax the excess.

A homeworking arrangement exists where there are arrangements between the employer and the employee such that the employee must work at home regularly under those arrangements. While the arrangements need not be in writing it is advisable that they are. The arrangements do not need to apply to all employees.

It is important to remember that the exemption does not apply where an employee works at home informally and not by arrangement with the employer. For example, it will not apply where an employee simply takes work home in the evenings. It only applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises.

HMRC’s guidance indicates that where an employee is working from home due to COVID-19 either because the employee’s workplace has closed or the employee is following advice to self-isolate, a homeworking arrangement will exist for this period. In any other case where an employee is working from home as part of an employer’s response to COVID-19 it is advisable to agree with the employee in writing that homeworking arrangements exist.

Tax exempt payments can be made to meet or reimburse reasonable additional household expenses that an employee incurs in carrying out the duties of the employment at home under homeworking arrangements. Typically, this will include the additional costs of heating and lighting the work area. There might also be increased charges for internet access, home contents insurance or business telephone calls. Where working at home leads to a liability for business rates the additional cost incurred can also be included. Employees operating under a work from home arrangement are advised to check that their home insurance permits working from home and employers should check their insurances as regards equipment used outside the workplace.

The additional household costs must be reasonable and must be incurred in carrying out the employee’s duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment.

The additional household expenses may include an employee’s broadband charges in certain circumstances. If an employee who begins to work from home under homeworking arrangements is already paying for a broadband internet connection at home, there is no additional expense to be claimed. If the employer reimburses the employee’s broadband internet charges in such circumstances the reimbursement is taxable. But if the employee does not already pay for a broadband internet connection at home, and needs one in order to work from home under homeworking arrangements, the broadband fee is an additional household expense that the employer can include within tax-free homeworking payments. In this case, the broadband would be provided for business use and any private use must be insignificant.

An employer can agree to make a tax-free payment to an employee of £6 per week where the employee is working regularly at home under a homeworking arrangement without the employer having to justify the amount paid. If the £6 guideline rate is paid the employee does not have to keep any records to demonstrate the additional expenditure. However, greater amounts can be paid where the employee provides the employer with evidence to justify them and the employer agrees to pay that greater amount. This is likely to be relevant where the additional household costs go beyond gas, electricity, and heat and include, for example, broadband costs (see above) and the cost of business telephone calls (if not included in an existing contract). Records and evidence need to be kept showing how the payments have been computed.

The advice in this column 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.

Contact Malachy

Malachy McLernon / Director

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