Richard Coombs, Tax partner at Bates Weston, considers the tax reliefs available for those working from home.
“Whilst for some, working from home has been a regular part of working life for many years, for many the new enforced lockdown has meant that it is a brave new world of discovery. Once everyone gets used to video conferencing, virtual networks and the biscuit tin being far too close for comfort, thoughts will inevitably turn to whether there are any tax breaks available for additional costs incurred by employees. The employer will, likewise, need to understand the tax treatment to ensure it is accounted for properly.
In anticipation of this, HMRC have recently published their guidance on the subject.
To be clear, unlike the various “giveaways” announced for furloughed workers and the self-employed, there is no additional giveaway here. HMRC are merely confirming what the rules have always been for home-workers. It should also be made clear that these rules only apply for employees who are continuing to work. They do not apply to furloughed workers, not least because in order to be furloughed you are not permitted to work.
The rules are complex but we have tried to summarise the main elements below. Before we do that though, it is worth understanding the general rule that applies to any expense incurred by an employee when assessing whether it is taxable or not. Simply put, if the expense is “wholly, exclusively and necessarily” incurred for the purposes of doing your job then relief can generally be claimed. There have been so many tax cases over the years testing what this means that it is beyond the scope of this article to give chapter and verse. But essentially, if you don’t need something to perform your job then you can’t claim tax relief for it. However, if it is necessary and any personal use or benefit is insignificant then you can claim relief. “Insignificant” here is, interestingly, not judged by reference to time spent using it but on the company’s private use policy.
It is also worth explaining what “relief” means here too. Where your employer reimburses you a genuine qualifying expense then “relief” means that that reimbursement will not be taxable on you (as obviously usually anything your employer pays you is taxable as earnings). However, where your employer does not reimburse you for a similarly qualifying expense, you are entitled to claim a deduction of the expense against your taxable income for the year instead. The latter is not as beneficial as you are only getting tax relief at 20%/40%/45% of the expenditure, but it is still better than nothing. If you don’t already file a tax return then you will need to contact HMRC to get relief for it.
Fortunately, most categories of expenditure have been identified by HMRC and the rules for each category are clear. We have listed what we expect to be the most common below:
Working from Home – Tax Reliefs
Additional electricity, heating or broadband costs
For many people, working from home will necessarily involve additional electricity and heating costs. Whilst most people have broadband already and therefore will not generally incur additional costs, HMRC also include this in the list of additional general costs of working from home. HMRC acknowledge these additional costs but also accept that it is nigh on impossible to accurately calculate what these incremental costs are. Therefore, to keep things simple, the employer can reimburse you a fixed amount of up to £4/week (£6/week from 6 April 2020) tax free without the need for supporting evidence. This is not an entitlement to this weekly amount from your employer but simply a tax-free allowance.
If you feel the costs are more than this, then you will need to keep receipts and records to show that there has been an increase in cost directly related to your home-working. If it can be justified and the employer agrees to reimburse you then the reimbursement is non-taxable. If there is no reimbursement policy, or you are reimbursed less than what you have incurred, you can claim the difference as a deduction against your taxable employment income.
Without the use of the office work phone, any business calls will either have to be made from the home landline, a mobile phone or via a broadband connection (e.g. Skype, Zoom etc).
Home landline : if you incur additional phone charges for making business calls, then the amount reimbursed by your employer for these calls is not taxable. You need to keep records though of the calls made and the costs of the calls.
Mobile phone: if your employer provides you with one mobile phone then no benefit arises, irrespective of whether there is a personal use. This only applies if the company has the contract with the phone provider. If you own your own phone and now also need to use it to make business calls then the position is the same as the home landline. For many people though, the call-inclusive phone plans will mean that they are unlikely to incur any additional call charges unless they go over their limit or make international calls etc.
Broadband: as most people already have broadband, no claim can be made for the costs that you are already paying other than the general allowance mentioned above. The exception to this would be if you previously did not have broadband but now need it to perform your duties and your employer pays for installing it and the monthly costs, or perhaps you needed to upgrade the broadband package to give you additional bandwidth to deal with video conferencing etc. In both exceptions, private use must be kept to a minimum.
Laptops, computers and office supplies
If you already own a laptop, computer, printer etc then there is no tax relief for anything that you claim from your employer. However, if you do not have one but require one to work from home, then reimbursement of the expense of buying one is non-taxable, providing again that there is no significant private use.
The reimbursement of other related equipment (e.g. a desk) is taxable, but your employer may be willing to pay the tax on your behalf directly to HMRC under what is known as a PAYE Settlement Agreement (PSA). However, if they do not reimburse you then you cannot claim this against your earnings.
We suspect for most employees if they are not going into work they are also not doing much business mileage. However, if you do have to do business mileage then the usual rules apply, namely a tax free allowance payment of 45p per mile up to 10,000 miles and 25p per mile thereafter.
For some people, they may be required to self-isolate away from the family home. If the employer pays for additional accommodation then this is taxable and so will either be borne by the employer as part of the PSA mentioned above or will be taxed on the employee.
What to do next?
The key message here is to keep a track of what additional costs you are incurring and then speak to your employer to see what they are willing to reimburse. Your employer will need to be comfortable that any reimbursement made in excess of the usual permitted amounts can be evidenced by receipts etc. To the extent that you are not reimbursed the full amount then you should consider claiming any excess against your income for the year. If you need any assistance with this please do not hesitate to get in touch.