Many employees are now required to work at home as their workplace is closed. Some employers have been very supportive of their employees, providing all the equipment required, and reimbursing expenses, others not so much.
As we explained in our newsletter on 9 April 2020, employers can pay their employees a homeworking allowance to compensate for the additional household expenses incurred when working at home. Where the allowance doesn’t exceed £6 per week (£26 per month) the employee is not required to provide evidence of additional costs, and the payment is tax-free and NIC-free (ITEPA 2003, s 316A).
If the employer doesn’t pay the homeworking allowance, HMRC’s view was the employee could only claim a tax deduction for additional homeworking costs under ITEPA 2003, s336, which has much stricter conditions.
However, on 15 May 2020 HMRC changed its policy as set out in the Employment Income Manual (EIM32815). It will now accept claims for homeworking expenses from employees of £6 per week (£26 per month) under ITEPA 2003, s 336 with no proof of the costs required. The cost of business telephone calls can be claimed in addition to this deduction.
HMRC also implies that homeworking expense claims for periods before 6 April 2020 will be accepted using the rate of £4 per week (£18 per month). Such claims can be submitted on the SA tax return or using form P87, but they must be made within four years of the end of the tax year to which they apply.
In our newsletter on 9 April we also warned that where the employee has purchased office equipment to allow them to work from home, any reimbursement of those costs by the employer could create a taxable benefit. However, that problem will now be resolved by a change in regulations.
There will be a temporary tax exemption where employees are reimbursed for the cost of equipment needed solely for them to work at home, where the payment is made to the employee between 16 March 2020 and 5 April 2021.