In our regular Q&A series from Croner Taxwise, tax adviser, Kabita Tank explains what conditions need to be met for an employee to claim the tax-free homeworking allowance of up to £6 per week
Q. I’m now working from home since the outbreak of coronavirus (COVID 19), Can I claim any expenses whilst working from home?
A. In short, the answer is yes but there are conditions that need to be met.
I am assuming that you are not currently receiving any expense allowance or reimbursement from your employer. It is always worthwhile checking with your employer to see whether they will agree to pay you the tax-free homeworking allowance (s316A ITEPA 2003), currently £6 per week maximum, or pay or reimburse any other allowable costs you are incurring.
To help employers see what expenses they could pay employees during the Covid-19 outbreak, HMRC published guidance entitled ‘Check which expenses are taxable if your employee works from home due to coronavirus (Covid-19)’.
In addition there was a parliamentary statement on 13 May explaining that from 16 March to the 5 April 2021 there will be a temporary tax exemption and NIC disregard where the employer reimburses an employee for the costs of home office equipment providing certain conditions are met.
Apart from the points mentioned above, when looking at the expenses you are incurring yourself, we need to consider the specific expenses that can be claimed and whether or not the employer is going to reimburse the expenses.
S336 ITEPA 2003 ITEPA 2003 states that, to be allowable as a deduction from earnings, the employee must be obliged to incur and to pay expenses wholly, exclusively and necessarily in the performance of the employment duties. It is not enough for expenses simply to relate to the employment, they must meet this statutory test.
Additional household expenses
As you are spending more time at home, you may be incurring higher heating and lighting costs, telephone/internet charges etc. owing to work. Providing you are now performing substantive duties at home and meet other conditions (for which see HMRC’s guidance at EIM32760) you can claim for these additional costs. HMRC accept that it will be difficult to calculate the additional costs incurred and so offer you a choice:
- You can claim a deduction of £6 per week or £26 per month if monthly paid (exclusive of the cost of business telephone calls), or
- You can claim more but you must keep records and be able to show how this figure has been calculated.
If your employer pays you a homeworking allowance, then you must reduce your claim by this amount.
See HMRC’s guidance at EIM32815.
Telephone & Computer Equipment
If you are using an employer provided mobile phone then s319 ITEPA 2003 exempts this from an income tax charge. If you are using your own telephone, mobile or landline, then you can claim relief for the cost of business calls but not any rental element. The calculation can be complex for mobile phone use. HMRC’s guidance begins at EIM32940.
Broadband, Computer equipment etc.
In the rare case that you don’t already have a home computer or broadband connection but need these to work from home, then the provision of computer equipment and the reimbursement by your employer of a broadband connection fee can be reimbursed by your employer and is non-taxable by virtue of s316 ITEPA 2993 providing that non-employment use is ‘not significant’.
The same rule would apply where you are temporarily having to use office equipment in your home whilst home working. HMRC’s guidance is at EIM21611 and their view of ‘not significant’ is provided at EIM21613.
Reimbursement or Tax Relief Claim
Clearly it is on your interests for your employer to pay for, or reimburse you for the cost of, allowable expenses wherever possible. In this way you are not out of pocket.
However, if your employer does not reimburse all allowable costs, then you can still claim tax relief for the allowable expenses. This will at least give you some help towards the costs.
For example, if you are a basic rate taxpayer, you can reduce your income tax liability by 20p for every £1 of allowable expenses incurred but not reimbursed.
If you already within self-assessment, then you should make the claim on your annual return. If you are outside of self-assessment, you can use the form P87 procedure. You cannot claim more than £2,500 of expenses using the P87 procedure and will have to register for self-assessment if your claim is higher. Whichever method you use, remember to retain receipts and calculations as evidence to support the claims made.
This update is subject to change at short notice as the government releases its own updates – this guidance was last updated Tuesday 26 May 2020
Further information on covid-19 is available here, Croner Taxwise consultants
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