In April 2020 nearly half of people in employment worked from home with most saying it was due to the COVID-19 pandemic. However, working from home has now become more common with an increase in the number of employees either being told to work from home permanently or having a more flexible approach to work.
What tax reliefs can be claimed by employees and businesses?
Many tax implications have arisen for those working from home as more expenses are being incurred.
Generally, most expenses can be claimed back by employees from their employer through a company’s usual expense procedure. Although these must be wholly and exclusively for the employee to carry out their duties. If the company does not reimburse the employee for such expenses, the employee may be able to make a claim to HMRC via self-assessment for the expenses instead.
As most are already aware, those working from home are entitled to £6 per week tax-free from 6 April 2020 for household expenses without the requirement to provide evidence of such costs. Should your employer cover more than this amount, evidence for the excess will need to be provided or an arrangement with HMRC agreeing this excess will need to be in place. If not, the excess will be subject to tax.
Tax reliefs for common items enabling employees to work from home:
Most households subscribe to a broadband package, therefore HMRC have decided no reimbursement will be required by employers. If an employer chooses to do so, this will be taxed as earnings of the employee. Although there are situations where an employee purchases a broadband package after being asked to work from home for business purposes. If it can be proven this was purchased wholly for the employee to carry out their work, then this can be included within the tax-free homeworking payments.
This also applies to mobile phones. If the cost of business calls isn’t included within the employees existing contract or they can provide a record of costs relating to business calls exclusively, then these too can be included within the tax-free homeworking payments. Also, the provision of one mobile phone and SIM card by the employer is exempt from tax regardless of private usage.
The most common purchases made to enable employees to work from home would be office equipment. Items such as office stationery which are needed for the employee to carry out their duties are not taxable. Similarly, any other equipment bought by the employer which are solely needed for work are exempt from tax. If there is significant private use, the exemption will not apply and a ‘benefit in kind’ tax charge will apply.
Plant and machinery (e.g. computers etc.)
Items considered plant and machinery e.g., computers, monitors and office furniture and used for private use will be taxable if the employee is the one to purchase and is reimbursed by the employer. The tax can be reported by way of the employer's PAYE Settlement Agreement (PSA).
However, if there is a transfer of ownership it will need to be considered carefully to determine if an employee benefit arises taxed on the market value.
There are many tax savings in relation to working from home which can be claimed by either an employee or a business. These should be considered whether the working from home arrangement is temporary, permanent or on a hybrid basis.
Please do contact us should you have any queries as such reliefs can easily be overlooked.