As of 22nd September 2020, the official guidance advising people to "work from home if you can" has been reintroduced to reduce social mixing and slow the spread of the virus. And many were already doing just that... according to research from The Chartered Governance Institute, over half of office workers will be carrying on working from home, with some companies maintaining their work from home strategy until 2021.
If your business is keeping some or all of your workforce in a homeworking capacity, or introducing more flexible working patterns across the business, it is important to understand the financial implications for your business.
As a result of working from home, employees could incur additional costs. As an employer, you have a choice to make… you could reimburse these costs to your employees, or failing this, they would be eligible to claim tax relief on the costs.
Employer Reimbursement of Costs
Employers can pay a fixed amount of £26 per month (or £6 per week) to cover extra costs incurred from homeworking (this is only if homeworking is mandated, and not just if an employee has chosen to work at home). This amount is a flat rate payment and no justification or receipts showing where the costs are incurred are required.
Alternatively, you could reimburse for allowable costs, much like any other expense claim. Allowable costs include extra insurance, telephone costs, extra heat and light etc. This cannot include costs that exist regardless of homeworking such as rent and mortgage payments.
Employees Claim Tax Relief
If you choose not to pay allowable costs or the flat rate of £26 per month, employees can claim tax relief on the expenses they have incurred.
The tax relief would only cover any allowable expenses such as extra heat, light or metered water costs that the employee may incur as a result of working from home. Again, if these costs are not easy to calculate / apportion between private and business usage, a flat rate of £26 per month can be claimed as a tax relief. This would reduce any income tax payable by £26 x employee's marginal tax rate, i.e. for a higher rate taxpayer, it would be worth £10.40 per month.
There are various methods to claim this relief, which can be found on the link below. The easiest method is for the employee to call HMRC, but this can take a while!
More information on claiming employee tax relief can be found here: https://www.gov.uk/tax-relief-for-employees/working-at-home
In summary, there are two main options to reclaim any costs related to homeworking. If an employer agrees to pay the £26 monthly flat rate allowance, or reimburse the actual costs incurred, this is the most beneficial route for an employee. Alternatively, they can reclaim some of the costs through claiming tax relief, either on the actual costs, or the allowable monthly flat rate, albeit that this is a tax relief, hence they would only receive 20% / 40% / 45% of the value, depending on their earnings level.
Please note, this article is provided for information only. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this content can be accepted.