Tax free homeworking allowance

Tax free homeworking allowanceTax free sums available to support homeworking during the Coronavirus Pandemic

Michael Chadwick, founding Director at Chadwick & Company, gives advice how tax free allowances for home workers. 

Due to the coronavirus pandemic, HMRC will agree that employees working from home, as a result of business premises being closed, will become eligible to claim a homeworking allowance tax free.

The claim can be made from the date it was agreed working from home must begin or from the date of the government advice was made.

The allowance is £4 per week up to 5 April 2020 and £6 per week from 6 April 2020.  This allowance is paid from the employer to the employee and is tax free to meet additional costs an employee will have due to working from home.

If the employer decides to pay more, where evidence is provided by the employee to support the additional costs, then the excess may be subject to Income tax and NIC.

The tax free allowance is intended to cover the increased cost of heat, light, insurance, water and telephone or broadband, but not fixed costs such as mortgage interest, rent or water rates.

Homeworking relief

Where an employer is unable or unwilling to pay the homeworking allowance – or to reimburse in full the employee’s extra costs – can the employee get tax relief for the costs of homeworking?

Costs must be incurred wholly, exclusively and necessarily for the employee’s work under ITEPA 2003 s336.

If the conditions are met, the employee can claim relief for household expenses including heating and light for the working area, cost of water (metered) and unit costs of telephone calls, if applicable.

An employee can either keep records and claim relief for their actual costs or claim a fixed amount of £6 a week or £26 a month (£4 a week or £18 a month prior to 6 April 2020) - with an additional claim for the cost of business calls on top.

The employee can make a claim either online, by phone, by post or through their self-assessment tax return.

Office furniture and computer equipment

Employers can provide their employees with equipment needed to perform their duties at home and provided there is no significant personal use there will be no benefit in kind issues.

However, if the employee purchases the equipment personally, the subsequent claim for reimbursement will be taxable as it will be difficult to prove that it was necessary under current HMRC guidelines.

We are here to help

If you would like to talk to a qualified accountant or tax specialist about these measures, or any other financial matter, then please do not hesitate to get in touch. We are now operating a 'virtual office' with Directors and Senior Managers still available to respond to calls and emails, so we are on hand to offer support and guidance for your business throughout this testing time. 

Download our advice sheet for further information. You can also read more about the Government homeworking allowance here.

If you have any queries, feel free to email or call us on 0161 370 9600.