With up to £124 a year available as tax relief, it is perhaps not surprising that some 54,800 working from home tax relief claims were made through HMRC’s new online portal in the first 11 days of operation, writes Philip Smith
On 14 October 2020, HMRC boasted that in the space of 11 days nearly 55,000 individuals had made a claim for tax relief on expenses incurred as a result of being required to work from home during the Covid-19 pandemic. That is 5,000 a day, a number that could well rise in the coming weeks as more people are required to work from home again due to tightening restrictions in particular regions around the UK.
Launched on 1 October, the online portal has been set up to process tax relief on additional expenses for employed workers who have been told to work from home by their employer to help stop the spread of coronavirus.
From 6 April 2020, employers have been able to pay employees up to £6 a week tax-free to cover additional costs if they have had to work from home. Employees who have not received the working from home expenses payment direct from their employer can apply to receive the tax relief from HMRC.
Eligible taxpayers can claim tax relief based on the rate at which they pay tax. For example, if an employed worker pays the 20% basic rate of tax and claims tax relief on £6 a week, they would receive £1.20 a week in tax relief (20% of £6 a week) towards the cost of their household bills.
Higher rate taxpayers would therefore receive £2.40 a week (40% of £6 a week). Over the course of the year, this could mean taxpayers can reduce the tax they pay by £62.40 or £124.80 respectively.
Once the application has been approved, the online portal will adjust an individual’s tax code for the 2020 to 2021 tax year. The employee will receive the tax relief directly through their salary and will continue to receive the adjustment until March 2021. Employees could alternatively receive the tax relief as a lump sum payment if they wait and apply once the 2020 to 2021 tax year has ended.
Crucially, employees do not need to provide evidence to show their bills have increased unless they are applying for tax relief on costs above the £6 per week flat rate, in which case evidence of the increased costs may be required.
Nigel Morris, employment tax director at MHA MacIntyre Hudson says there are a number of special rules and circumstances that apply to getting tax reliefs on expenditure for working from home.
‘The good news is that you no longer have to keep an extensive paper trail to claim relief for working from home,’ he says. ‘Changes have been made because Covid-19 required so many employees to work from home. From 6 April 2020 “for ease of administration”, HMRC accepted that employees required to work at home can claim a deduction of £6 per week or £26 per month without having to keep receipts. For the years before 2020/21 HMRC will accept claims for deductions amounting to £4 per week or £18 per month and you won’t need the receipts for 2019/20 either.’
However, Morris warns that for individuals who want to claim more than the flat rate of £6 per week, evidence of the additional household costs is required. Individuals that complete a self-assessment return should to go to the section in that form titled ‘using your home as an office’.
But there is an additional twist. Martin Lewis, founder of the Moneysavingexpert website has discovered that individuals can theoretically claim for a whole year’s worth of tax relief even if they have only been required to work just one day from home.
Following the launch of the new portal on 1 October, Lewis said: ‘HMRC has confirmed to us that as long as you are required to work at home and have additional expenses due to it, even if it is only working from home part-time… you can still claim the full £6 allowance (whether as a payment from your firm, or as a tax break) and you too can claim for the entire 2020/21 tax year.’
And he checked this with HMRC, which told him: ‘We recognise that the working from home situation is very fluid this year, and so we’re accepting claims for the full year’s expenses, even if people have only worked from home for some of the year. This includes customers claiming through self assessment.’
Employees working from home due to Covid-19 may need to purchase their own home-office equipment, So, the government has made it easier for employers to reimburse the expense by creating a temporary income tax and national insurance contributions (NIC) exemption for employer-reimbursed expenses that cover the cost of relevant home-office equipment, including a laptop, desk or necessary computer accessories.
For example, if an employee is forced to work at home during lockdown and their employer agrees to them purchasing a desk and printer that costs a total of £750.
The employee then reclaims this from the employer. But instead of the employee having to potentially pay income tax and NIC on the £750 reimbursed, the exemption means no income tax and NIC is due. This will save £343.50 for a typical employee and for higher rate employees it will save £418.50.
‘As an employee you do not have to do anything other than remind your employer that the amounts they have reimbursed you for this equipment is not a taxable benefit due to Covid-19,’ says Morris.
If an individual has a company car that they might not be able to use, for example because of local lockdowns or a second wave of Covid-19, they can leave it sitting on the driveway tax-free. Company cars are not subject to benefit-in-kind tax if they are handed back to the employer.
This can be done either physically or ‘virtually’ which means the employee returns keys and fobs to the employer but not the vehicle itself.
However, employees do need to ‘return’ the car for 30 consecutive days for the benefit in kind tax to be withdrawn. To do this they should agree in writing with their employer that the car is being returned and get their employer to acknowledge receipt of the keys and fobs.
In addition to claiming expenses for working from home, HMRC adds that employees may be able to claim tax relief on the cost of:
- repairing or replacing small tools needed to do their job (for example, scissors or an electric drill)
- cleaning, repairing or replacing specialist clothing (for example, a branded uniform or safety boots)
- business mileage (not commuting)
- travel and overnight expenses
- professional fees and subscriptions