Covid-19: The tax implications of working from home

16 April 2020

Can employees working from home due to COVID-19 claim expenses related to working from home or qualify for tax relief even if they do not have a homeworking arrangement?

The simple answer is YES, as long as the employee is not “choosing” to work from home and is forced to do so as a direct consequence of the COVID-19 restrictions. If, on the other hand, working from home is voluntary, then unfortunately you cannot claim tax relief on the bills you have to pay.

Has there been any information released by HMRC about new relief measures for those now working at home?  

A lesser known piece of information relates to salary sacrifice arrangements.

Normally, an employee cannot freely switch out of a salary sacrifice scheme unless there is a ‘life event’. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.

What can people claim as an expense relating to working at home? Can people deduct office supplies, heating, rent/mortgage etc. 

Certain costs are simply excluded from relief, such as costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates.

Below are some common expenses we have seen being claimed by employees of our clients as a result of the COVID-19 pandemic:

  1. Supply of one mobile phone and sim card per employee

The supply of one mobile phone and SIM card per employee is non-taxable.  There is no restriction for private use

2. Provision of new broadband connection

If, as an employee, you already pay for broadband then no additional expenses can be claimed.

However, if due to the current situation a broadband internet connection is needed to work from home and one was not already available, then the broadband fee can be reimbursed by your employer and this is non-taxable.

In order to be treated as non-taxable though, the broadband is provided for business and any private use must be limited.

3. Providing/allowing home use of laptops, tablets, computers, and office supplies

If these are mainly used for business purposes and there is no significant private use, the provision of IT equipment and office supplies (for instance paper for printing) is non-taxable.

What is the process for getting reimbursed, does this need to be claimed from the employer, and if not, then file with HMRC? 

In April 2016, HMRC introduced an exemption for paid or reimbursed expenses. Under this exemption, qualifying expenses can be paid by employers free of tax without the need for an employer to apply to HMRC for a dispensation. These expenses do not need to be returned to HMRC at the end of the tax year on form P11D, and employees no longer need to make a claim to HMRC for a corresponding tax relief.

When employers do not reimburse expenses that employees have incurred, this can be deducted from an employee’s taxable income. So if an employer did not reimburse the cost of business travel, for example, the employee could submit a claim to HMRC after the end of the tax year, claiming tax relief at their marginal tax rate.

Can people be reimbursed above £4/week? 

Payment or reimbursement to employees of up to £6 a week (or £26/month for employees paid monthly) is non-taxable. This was £4 a week (or £18/month for employees paid monthly) prior to 6 April 2020.

This sum is a flat rate allowance estimated to cover the additional household expenses incurred when the employee is working from home, such as electricity, heating or broadband.

If, as an employee, you think your costs exceed this amount, then you will need to check with your employer as to whether they will make payments of the higher amount. I would suggest you keep receipts to support the additional costs.

If your employer does not reimburse the higher costs, you may be able to claim tax relief through your online Personal Tax Account instead.

Do you need to keep your receipts for these purchases? 

As a general rule, it is always wise to keep records and receipts of all expenses being claimed, should HMRC ever enquire into your tax affairs.

This would prove especially important if, for instance, your employer is reimbursing you for amounts in excess of £6 a week (or £26/month for employees paid monthly).

Further information

It is worth noting that Interest free loans (advances) of up to £10,000 in a tax year are non-taxable. Your employer may be able to provide a loan to assist you in case of hardship, which could be invaluable in the current climate.

Always ensure there is clear agreement in writing between you and your employer as to the terms of the loan, particularly in relation to repayment.

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