Working from home expenses
With so many of us working from home now, what can your employer pay you as working from home expenses and what are the tax implications?
This blog is written from the perspective of employees (including directors) and their employers.
The rules if you are self employed are slightly different.
Homeworking expenses include:
- equipment, services or supplies provided to employees who work from home (for example computers, office furniture, internet access, pens and paper)
- additional household expenses, such as gas or electricity charges, for employees who need to work from home
Let’s take these in turn.
Equipment, services and supplies
If your employer provides equipment, services and supplies to you and you work from home, then as long as they are just for business use, or at least any private use is insignificant, then neither you or the employer need to report or pay anything to HMRC.
What additional household expenses can I claim for, tax free?
As an employee you can’t claim for home-related costs that don’t increase because you’re now working there. That includes council tax payments, rent, mortgage interest, or water – unless you have a water meter.
Your employer can cover the cost of additional household expenses if you work from home and there will be no tax liability if:
- you need to work from home, either because equipment you need is not available at your workplace, or your work means you have to live too far away from your workplace to travel there every day. If you’ve agreed with your employer to work at home voluntarily, or you choose to work at home, you cannot claim tax relief on the bills you have to pay.
- the amount your employer gives you is not more than your additional household expenses
- the amount your employer gives you is not more than the current weekly limit
If your employer covers costs over the weekly limit (£6, or £26 a month for employees paid monthly), they need to be able to prove that the payments are no more than your additional household expenses. If the payments from your employer are more than your additional household expenses they count as earnings, the excess will need to be added to your other earnings with PAYE and Class 1 NI deducted and paid to HMRC.
In reality it isn’t always clear and straightforward to work out the value of the additional costs for home working, how much of your gas bill is because you use part of your home for work and how much of your gas bill would you have incurred anyway, without working from home? Unless you think that your additional costs are going to be significantly more than the the weekly limits it’s generally simpler to just claim from your employer at the weekly limits and not worth the effort to calculate specific amounts.
So what can I claim if I run my own business from home?
As a company director running your business from home you are wearing both hats, employer and employee. Your company can therefore pay you £26 each month tax free. The important part is working from home. If you work from a rented office space then this allowance doesn’t apply.
Weekly tax limits
Tax years Weekly limit
2020 to 2021 onwards £6.00 (or £26 a month for employees paid monthly)
2012 to 2013 — 2019 to 2020 £4.00 (or £18 a month for employees paid monthly)