For many of us, working from home continues to be the reality as many business offices continue to limit their capacity in accommodating all employees, in attempt to meet social distancing measures.
From 6 April 2020, employers have been able to pay employees up to £6 a week tax-free to cover additional costs, where they have had to work from home, in response to COVID-19. This tax-free payment could be paid to employees from the date that their employer agreed they could work from home, or from when government advice was announced.
However, this tax-free payment, to employees, was paid at the discretion of the employer and was not mandatory. Where some employers have chosen not to pay this, eligible employees can instead apply to receive tax relief, for their additional household costs, from HMRC. Additional costs include heating/electricity, water bills or business calls. This tax relief is available for employees who are required to work at home on a frequent and consistent basis.
The employee can either claim tax relief on:
• £6 a week from 6 April 2020 – the employee does not need to keep evidence of their additional costs when claiming this “flat rate”; or
• the exact amount of additional costs that the employee has incurred above the “flat rate” weekly amount – employee is required to retain evidence such as receipts/bills.
Eligible employees/taxpayers can claim tax relief based on the rate at which they pay tax. Where an employee pays 20% basic rate of tax and claims tax relief from HMRC on the flat rate of £6 a week, they would consequently receive £1.20 per week in tax relief (20% of £6).
The above tax relief is not available to employees who choose to work from home, in response to the Government’s advice. There should be a conversation and agreement made between employee and employer, and where this concludes the employee working from home, the tax deduction will be available. In addition, where the employee splits their time between the office and home-working (e.g. three days office-working and two days home-working), they are still entitled to claim the full £6 a week flat rate deduction. There is no need to adjust this amount for days worked in the office.
How to Claim
HMRC launched an online portal on 1 October 2020 in order to process tax relief on additional expenses incurred by employees who are required to work from home to assist with mitigating the spread of COVID-19. To claim these expenses, employees will require a Government Gateway user ID and password (this can be set up where not already available). Alternatively, where the employee is registered for self-assessment, this tax relief can be claimed through their tax return.
Following approval of the application by HMRC, the employee’s tax code is adjusted for the 2020/21 tax year. As a result, the employee will receive the tax relief directly through their salary until March 2021. Employees can alternatively receive the tax relief as a lump sum payment if they wait and apply following the end of the 2020/21 tax year.
It is thought that these homeworking allowance claims will not be automatically rolled forward into the 2021/22 tax year. HMRC have alluded to the fact that it is not currently their intention to extend this relief beyond 2020/21.