Tax treatment of staff working at home

An HMRC update has clarified that rules governing working from home expenses cover employees working from home due to COVID-19 because their workplace has closed, or they are following advice to self-isolate.

However, workers furloughed under the coronavirus job retention scheme do not come within the exemptions. Employees working from home may incur additional costs. For some, their employer may be willing to reimburse their costs. If this is not the case, then the employee will need to see if tax relief is available. During the COVID-19 pandemic, HMRC will accept that employees forced to work from home are eligible to receive tax free payments from their employer from the date that their employer agreed they could work from home, or from when government advice was announced.

The reimbursements can only cover reasonable additional costs incurred by the employee and there are two options here. Firstly, the employer can pay fixed amounts: £6/week for weekly paid employees (£4/week prior to 6 April 2020); or £26/month for monthly paid employees (£18/month prior to 6 April 2020). The advantage of paying at these rates is that there is no need for the employer to justify the expenditure and the employee does not need to keep records of their additional costs.

Secondly, if the flat rate is not appropriate, the employer can reimburse the actual additional costs incurred by the employee. Allowable costs include additional heating and lighting costs, additional insurance, metered water, telephone or internet access charges and business rates. Only the increase in costs incurred by the employee can be reimbursed. If an employer chooses not to reimburse some or all of the homeworking employee’s extra expenses, then the employee is not automatically allowed tax relief on their extra costs. Tax relief for extra costs is only given if such costs are incurred wholly, exclusively and necessarily for the employee’s work. In order to claim tax relief, the employee must show that their home is a workplace and it is assumed that HMRC’s conditions should be met by employee homeworking as a result of COVID-19. An employee who can show that their home is a workplace can claim relief for the following expenses which, with the exception of insurance, are very similar to the costs that can be reimbursed by their employer above: additional heating and lighting and metered water. An employee cannot claim relief for mortgage interest, rent, council tax, water rates or insurance.