The tax-free payment that can help with the cost of working from home

The payment is one of a number of measures included in a new guide produced by the CIOT on the tax implications of working from home.¹

The Institute noted existing HMRC guidelines that permit employers to pay their workers who regularly work from home under an agreed arrangement a tax-free payment to help cover costs associated with higher household bills, such as electricity and gas.²

HMRC has confirmed that employers who require their employees to work from home as a result of the temporary closure of their business premises due to the Coronavirus would be able to provide the tax-free payment as a means of offsetting reasonable additional household expenses.

This payment increased to £6 per week – or £26 per month – from 6 April as a result of measures announced in the March Budget.³ It is usually paid to workers in addition to their salary.

It is up to an employer to decide whether to make the payment. If they don’t, employees may be able to claim tax relief from HMRC on the additional household costs of their home office, provided they keep records of these costs and can prove to HMRC that they were ‘wholly, exclusively and necessarily’ in the performance of their work.⁴

Colin Ben-Nathan, chair of the CIOT’s Employment Taxes Sub-Committee, said:

“If normal circumstances, if an employer has an agreement with their worker to work regularly from home, then they can choose to pay them a tax-free payment to help with extra costs such as heating and lighting their home workspace.

“HMRC have confirmed that following the government’s Coronavirus guidance, employees who are working temporarily from home will be eligible to receive this tax-free payment because they currently have no appropriate office-based facilities.

“While we expect that this situation will be temporary, the extra £6 per week that is payable to employees through their regular salary payments would be a welcome boost – particularly for those on lower incomes – to help offset some of the additional costs associated with working from home."

Notes for editors

1.  The CIOT’s paper, Employment Taxes: An introductory guide to the tax implications of working from home and other related expenses and benefits covers a range of tax implications for businesses and employees. To view this, email [email protected] quoting the headline of this press release.

It is being regularly updated as new information emerges.

The measures covered in the guide include:

• Employer homeworking payments
• Employees’ unreimbursed expenses
• Employer-provided equipment, such as mobile phones, computers and printers
• Administration costs such as stationery and postage as well as telephone and internet costs
• Travel and subsistence costs, including overnight accommodation
• Company cars
• Employer provided loans
• Medical check-ups and welfare counselling

2. HMRC’s guidance on claiming tax relief for job expenses associated with working from home can be found on its website ‘Claim tax relief for your job expenses’. HMRC’s Coronavirus specific guidance can be found at ‘Check which expenses are taxable if your employee works from home due to coronavirus (COVID-19)’

3. Paragraph 2.174 of the Budget ‘Red Book’ confirmed that the flat rate deduction for homeworking will increase from £4 per week to £6 per week with effect from April 2020.

4.  The rules for claiming tax relief for an office at home are far more restrictive than the exemption that permits employers to make tax-free payments to employees who are required to work from home. The CIOT understands that HMRC will only accept a claim for tax relief where no facilities were available for the employee to work at the employer’s premises and there was no choice available to the employee other than to work from home.