What tax breaks are available to employees who work from home?

Any company that employs remote or hybrid workers should take into consideration the potential tax breaks and deductions offered to workers who commute from their homes.

Employers may directly reimburse home-based workers for some household costs in the form of tax-free payments. Employees who work from home may also be eligible to claim some of their living expenditures and travel costs from their taxable income.

Can we refund work from home workers for their living costs without charging them taxes?

If an employee regularly works from home and you’ve given them permission to, payments made to repay them for reasonable additional household costs incurred while doing so may be made tax-free.

HMRC will accept a tax- and NI-free payment of up to £6 per week (or £26 per month for employees paid on a monthly basis) to a remote worker. Anyone who simply works part-time from home need not prorate it.

If you prove with accompanying documentation that the payment is entirely for “reasonable additional household expenses,” you can refund a higher weekly amount tax-free. Any additional heating and lighting expenses, metered charges associated with higher water use, business phone calls, internet access, home contents insurance, and business rates (if applicable) may also be included. Costs that would apply whether the employee worked from home or not are not reimbursed. When an employee needs a broadband internet connection to work remotely and does not already pay for one at home, the cost of the connection can be refunded tax-free.

On household expenses, can you claim tax relief for working from home?

Not all companies pay for the costs of working from home. However, people who work from home can get tax relief on their own.

If an employee can prove that the household expenses were “wholly, exclusively, and necessarily” incurred in the course of their employment, they may be eligible to receive tax relief on those expenses. This can be a hard test to pass, especially since HMRC usually doesn’t let claims go through if the employee has ever had a choice about whether or not to work from home. However, even if the employee was only compelled to work from home for only a part of the tax year (either by their employer or owing to government advise on COVID-19), a deduction from taxable earnings is allowed for household expenses for the whole tax year for tax years 2020/21, 2021/22 and 2022/23.

Extra expenses related to heating, lights, and water used for work can be deducted, as can the cost of business phone calls and internet access. Insurance costs can’t be covered by relief.

In October 2020, HMRC opened an online portal that made it easier for workers to apply for tax relief. Employees who meet the requirements for help can get £6 per week or £26 per month taken off their pay. Those who want to take more than this will have to keep records and be able to explain how they came up with their number.

Depending on their tax rate, employees will receive tax relief. For instance, if they pay 20% basic tax and request tax relief of £6 each week, they will receive £1.20 in tax relief each week.

Can a worker who works from home get Tax Relief on his or her travel expenses to the office?

Whether an employee works from home full- or part-time will depend on how often they visit the office.

The complex HMRC regulations governing this focus on the terms “permanent workplace” and “temporary workplace”:

• A temporary workplace is a place where an employee only attends to complete a brief task or for a short-term objective. HMRC will treat a location as a permanent rather than temporary workplace when an employee has spent or is projected to spend, 40% or more of their working hours there over the course of more than 24 months.
• An individual who regularly travels to their office to carry out their obligations as a permanent workplace. Regular attendance means that it happens often or in a routine manner. For example, travelling every two weeks could be considered regular.

If an employee works from home full-time, they may be eligible for tax relief on their unreimbursed travel expenses as long as the trip is not made often and HMRC recognises the office as a temporary business. Additionally, they are eligible for reimbursement for travel expenses to another temporary location, such as a client’s office.

An employee who works part-time from home and part-time from the office will have two permanent workplaces and cannot get tax relief on the expenditures of travel between them because it is considered regular commuting. On the other hand, they will be able to receive reimbursement for their travel expenses to any temporary workplace.

The location of the employee’s house must be determined by the demands of the job in order to qualify for tax reduction for travel expenses between home and another permanent workplace. Even then, travel expenses to the workplace are only tax deductible on days when the employee normally works from home.

If we give employees equipment to use at home, is there an income tax charge?

There is no income tax fee if you give an employee equipment to use at home while they are working, such as a chair, keyboard, or monitor, as long as any private use is minimal. The equipment stays yours and should be returned later (if ownership is passed to the employee, a taxable benefit will occur). You must make the benefit available to all employees on comparable terms in order to qualify for this exemption.

If we reimburse employees back for the cost of equipment used for working from home, is there a tax exemption?

In general, you cannot claim a tax exemption if you pay for an employee to buy equipment to use at home while they are working for you and you repay them for the expense. Only from March 16 through April 5, 2022, was there a temporary tax exemption for home office equipment that employees acquired and employers paid them for under COVID-19 (allowing employees to receive the full reimbursement free of income tax and NICs).

Please get in touch with a member of the SGT Law Firm staff if you have any questions regarding any of these issues.  Visit our website or give us a call at 0141 881 8795 if you want to learn more.