As the Government aims to cautiously restart the UK’s economy, Prime Minister Boris Johnson, has asked that individuals should continue to work from home where it is possible to do so, but he needs to look at the extra expenses they are incurring by being there.
This may include higher electricity and heating bills, internet and phone costs and new computer equipment. With working from home set to continue for many workers for the foreseeable future, the Government and HM Revenue & Customs (HMRC) need to review and broaden the rules. This could include increasing the tax-free allowance from £26 per month to £50 per month and/or providing for full reimbursement of expenses incurred through a ‘gross-up’ mechanism.
In normal circumstances, there are very few tax breaks for employees working at home. However, the lockdown measures have meant that many employees have been forced to work from home and people should be aware of the expenses they can claim against their tax.
- An employer can pay an employee a tax-free allowance of £26 per month, (or £6 per week) to meet the increased costs of home working. This is a round sum allowance, and receipts are not needed – but it is at the discretion of the employer
- If the employer does not pay the allowance, the employee can still claim this, but the benefit will only be £6.20 per month for a basic rate tax payer i.e. £26 x 20%.
- Employees can claim other expenses, but only where they are specifically needed for business purposes. So, the cost of extra business calls can be claimed, but the cost of a broadband package cannot be (even if the employer asks you to use the broadband for work). Similarly, phone line rental cannot be claimed, unless it is a separate line used only for business purposes (for example, if a high-quality ISDN line is needed). Claims of up to £2,500 can be made without needing to specify the full details, but receipts should be kept for at least four years in case HMRC asks questions later.
- An employer can provide an employee with a mobile phone, without any tax cost for the employee, provided the phone contract is in the employer’s name. This is a specific exception to the general rule of “necessary” expenses, but it only works if the employer provides the phone. If the employee has the phone contract, only business calls (and not the line rental) can be claimed.
For a basic rate taxpayer, any expenses claimed will reduce their tax bill by 20% of the amount of the expense – so an employee who claims costs of £200 will only get a reduction in their tax bill of £40 – HMRC only gives tax relief, not reimbursement of the full cost and this needs to be reviewed urgently.
If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or Nimesh Shah.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.