Whilst some homeworking arrangements may have been in place several weeks ago, due to COVID-19 we are now seeing more and more employees working remotely. So what does H M Revenue & Customs (HMRC) consider to be a homeworking arrangement, and what additional expenses can employees claim since they are now using their own home?
What is a homeworking arrangement?
A homeworking arrangement exists where there are arrangements between the employer and employee requiring the employee to regularly work from home. Current HMRC guidance indicates that where an employee is working from home due to COVID-19, either because the workplace has been closed, or they are following advice to self-isolate, a homeworking arrangement will exist for this period.
It is however still advisable that these arrangements are put in writing and our HR team can assist with this.
Can employers pay employees for extra costs incurred from working from home?
Employers may make a tax-free contribution towards an employee’s home expenses in respect of additional costs that an employee incurs due to working from home, assuming a homeworking arrangement exists.
These payments are typically made to cover the additional costs of heating and lighting the work area, additional home contents insurance or business calls. The allowance however excludes fixed costs which would be payable whether or not the employee works from home, for example mortgage payments or Council Tax.
The employer may choose to reimburse the full amount of the employee’s extra costs, however evidence must be produced to substantiate the reimbursement so detailed records should be kept.
Alternatively, the employer may use HMRC’s approved scale rates of £6 per week from 6 April 2020 (£4 per week up to 5 April 2020) which can be paid or reimbursed tax-free to an employee required to work from home.
Can employees claim tax relief on additional household expenses that are not reimbursed?
Employees may be able to make a claim for tax relief on the difference between the cost of additional expenses and the tax-free amounts received by the employer.
To make a claim for tax relief, the expense must have been incurred ‘wholly, exclusively and necessarily’ in the performance of duties, and there are only certain circumstances where HMRC accept that these conditions are met, including that employees are ‘required’ to work from home. Just being under a homeworking arrangement is not necessarily enough.
HMRC will only recognise the conditions are met for these purposes where no facilities are available for the employee to work at the employers’ premises, and there was no choice available to the employee other than to work from home.
HMRC have not yet confirmed that they will accept COVID-19 as being a situation where employees are ‘required’ to work from home – we therefore await their confirmation that employees can claim tax relief on additional non-reimbursed expenses. The approved scale rate of £6 per week, or reimbursed actual additional expenditure mentioned above have however been confirmed to be available under to COVID-19.
Please get in touch should you have any further queries regarding homeworking arrangements or employee expenses.