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posted on June 4, 2020
With the existing trend towards working from home accelerated during the Covid-19 lockdown, many people are asking how to save tax working from home because of the additional expenses they may incur. There are two ways this can happen:
Employers can make tax-free payments to help employees cover their reasonable additional costs which have been incurred while working from home. In order to be eligible, the employee must be regularly performing some or all of their duties at home. HMRC guidance states that they will accept that an employee is working at home regularly where this is frequent or follows a pattern such as working there for two days every week. There is no requirement that these days cannot be varied. Informal time spent working at home, which is not part of an official arrangement, does not count as working from home. For example, taking work home in the evenings will not qualify for a tax-free reimbursement of costs. There must be a proper arrangement to work at home rather than on the employer’s premises. Although not essential, it is good practice to have a written agreement.
Any reimbursement can only cover reasonable additional costs incurred by the home-working employee which are defined as:
HMRC also say, ‘The additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations.’
If the employee is already paying for an internet connection there is no additional expense and so the employer cannot reimburse the employee’s internet charges on a tax-free basis. On the other hand, if the employee does not already pay for an internet connection at home and needs one in order to work from home, the broadband fee will qualify as an additional household expense which the employer can reimburse.
There are two possibilities for employer reimbursement of costs in order to save tax working from home:
Either way the employee can save tax working from home.
If employers do not choose to pay or reimburse some or all of their homeworkers’ extra expenses, employees are not automatically allowed tax relief for their additional costs. Tax relief for such costs is only given if they are incurred wholly, exclusively and necessarily in the performance of the duties of their employment. This is true where the following circumstances apply:
This represents a significantly more stringent set of rules to enable you to save tax working from home. However, if the employee can show that his or her home is a genuine workplace, relief can be claimed for the same sort of expenses as the employer can reimburse.
So there are ways to save tax working from home but you may need advice on the most appropriate route for you to take.
Hi, I'm Lesley Hercock, Tax Manager Let's discuss your personal tax returns