COVID-19 has prompted the most significant shift to working from home the UK has ever seen. Affected employees may have incurred additional costs in order to have continued their work, and these may or may not have been reimbursed by their employer.
Whilst it has always been possible for employees required to work from home on a regular basis to secure tax-free reimbursement of certain, reasonable expenses from their employer, or tax relief direct from HM Revenue and Customs (HMRC), the COVID-19 situation has prompted HMRC to qualify the applicable tests.
For the avoidance of doubt, employees who choose to work from home rather being required to, do not qualify for any tax relief on their work-related bills.
Where home-working arrangements are on a part-time basis, employers have always been able to reimburse employees tax-free for reasonable additional costs they incur while working at home. The pattern of work, however, can be very important if a reimbursement of costs qualifying as home-working arrangements is to be made.
HMRC will accept that there are home-working arrangements and therefore allow the tax-free reimbursement of costs where two tests are met:
- there must be a formal arrangement between the employer and the employee
- the employee must work at home regularly under those arrangements
The arrangements need not be in writing but usually will be, and they do not need to apply to all employees. Where an employee works at home informally or not by arrangement with the employer – for example, where an employee decides to take work home in the evenings – a qualifying arrangement does not exist. It applies only where an employee works at home by arrangement with the employer instead of working on the employer’s premises.
HMRC will accept that an employee works at home regularly where working at home is frequent or follows a pattern. For example, where an employee agrees to work two days each week at the employer’s premises and three days at home, HMRC will accept that the work at home is regular. This will be so even if the days on which the employee works at home vary from week to week.
Employees who work from home by choice are unable to claim tax relief if their employer does not reimburse their expenses, so employers are advised to give careful consideration to meeting remote-working costs such that they are provided in a tax efficient way for such employees wherever possible.
What costs can an employer reimburse tax free?
Listed below are costs which might be incurred such that an employee can effectively work from home.
Mobile Phone – An employer is able to provide one mobile phone per employee. This is a tax-exempt benefit and therefore no tax will be due on this cost.
Broadband – If an employee already pays for broadband, then no expenses can be reimbursed tax-free by that employer. However, in the unusual situation where no broadband was available before the employee started working at home, and the broadband has been installed specifically to enable them to work from home, the employer can reimburse the broadband tax-free. In order to maintain a tax-free reimbursement, private use must be limited.
Laptop/Tablets – If an employer provides an employee with a laptop or tablet mainly for business purposes and there is no significant private use, the cost of supplying such equipment is not taxable.
Office equipment purchased by the employee – As long as the purchase does not have significant private use then an employer can reimburse the cost tax-free.
Electricity/heating – Payment or reimbursement to employees (£6 per week from 6 April 2020; £4 per week previously) is not taxable. These costs are to cover the additional household expenses incurred whilst working from home.
Loans – Loans up to £10,000, which may be used to assist employees at a time of hardship, can be made tax-free to employees.
In all cases it is important that where there is the possibility of private use, that the employer’s policy is clearly stated and any decision by the employer not to recover the costs of private use is a commercial decision, rather than rewarding the employee.
What steps can an employee who is not reimbursed by their employer take to recover home-working costs?
Qualifying claims can only be submitted directly to HMRC by employees who have been directed to work from home, either regularly or entirely. For employees who choose to work from home, their only recourse for reimbursement of costs is by way of their employer.
Where the employee normally submits a Self-Assessment Tax Return, claims for home-working expenses can be made as part of that Return.
However, for employees who do not normally submit their own Self-Assessment Tax Return, HMRC offers an online claims process on their website.
This link allows employees to claim for home-working costs such as heating and electricity, as well as the purchase of other equipment required to carry out their work from home. It also allows top-up claims to be made where an employer has only partially reimbursed an expense. Employees can submit their claim as soon as the home-working arrangements have ceased or become voluntary (and thereby not-qualifying), even if part-way through the tax year.
During the early stages of the COVID-19 lockdown many employers were following the government guidelines and requiring their employees to work from home where they could do so.
This means there was no doubt that it was necessary for the employee to work from home and, as a result, HMRC will allow claims for expenses associated with this period.
However, as workplaces begin to reopen, many employers are allowing their employees to continue to work from home, if they chose to do so. Where this is the case, the employee will need to demonstrate that it is still necessary for them to work from home and HMRC may deny claims which apply to such changed circumstances.
For most employees, the main additional expense will be electricity/heating. Where reimbursement is not made by the employer, HM Revenue & Customs will allow a claim using the rates of £6 per week from 6 April 2020 and £4 per week prior to that date. HMRC does not require employees to retain records in order to qualify for these base payments, though where actual costs are higher, records will need to be retained.
How can Scrutton Bland help?
For employers seeking to make reimbursements to employees, we can advise on specific proposals and provide risk advice pertaining to HMRC seeking to deny that tax-free payments were qualifying and, therefore, applying tax and National Insurance Contributions to those payments.
If you are an individual looking to make a claim via your Self-Assessment Tax Return we can assist you with making a claim as part of the Tax Return process.