What is Home working allowance?
Many self-employed people who work from home already benefit from this tax allowance via their self-assessment tax return but for those who normally work in an office this may be a new benefit they didn’t know about.
Home working as become the new normal during this pandemic, and HMRC will accept that employer’s offices have had to closed – or because the employee is following advice to self-isolate.
Newly home-based employees will be eligible to receive the allowance tax free from the date that they started to work from home.
How much is the Home working allowance?
The home working allowance was increased at the Spring Budget from £4 to £6 a week (or £26 a month) with effect from 6 April 2020.
An employer can pay more than £6 a week, provided there is evidence to support the additional costs incurred. Otherwise any excess will be subject to income tax and NIC.
How does the employee get the benefit?
An employer can pay this fixed sum, tax-free and NIC-free, to meet the additional costs an employee incurs working at home under home working arrangements and then claim it back on the company accounts.
Home working arrangements mean an agreement between the employer and employee (ideally in writing) under which the employee works at home regularly as part of their job, not just informally at weekends or evenings.
What does the Homeworking allowance cover?
Home working allowance is to reimburse the increased cost of heat, light, insurance, water and telephone or broadband, but not fixed costs such as mortgage interest, rent or water rates.
To be reimbursed tax-free, the employee’s costs must have increased as a result of home working. For example, an employee who is already paying for broadband cannot claim reimbursement for their internet costs simply because they are now working from home. But if they didn’t previously have internet access and now require it, that will be an additional cost.
What to do if an employer is unable or unwilling to give you the expense?
Where an employer is unable or unwilling to pay the home working allowance – or to reimburse in full the employee’s extra costs – the employee can still receive tax relief for the costs of home working via HMRC Online.
HMRC will accept that these conditions are met if the employee’s home is a workplace. To be a workplace, the employee’s home working must meet four criteria, including that there is no place for them to work at their employers premises and that the employee wasn’t able to choose between working at home or in the office at any time during their contract.
In these current circumstance, it is likely that HMRC will accept that an employee can’t work from their employer’s premises, but there has been no definitive confirmation that HMRC will accept that the further condition of lack of choice over working arrangements has been met.
If the four conditions are met, the employee can claim relief for household expenses including:
- Heating and light for the working area
- Metered cost of water used in the performance of duties
- Unit costs of telephone calls
Where a claim is possible, 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.
How does the employee make a claim to HMRC?
An employee can make a claim online, by phone, by post or, if they are registered for self-assessment, through their tax return. HMRC have a hand tool to help you with this.
