Who can claim costs of working at home
HMRC has clarified its practice for employees to claim a £6 per week homeworking tax deduction, but this may be a temporary concession for 2020/21.
In May 2020 HMRC changed its approach for employees who wished to claim a tax deduction for the costs they incur when working at home.
Until that point, there was a mismatch between employees who had agreed a homeworking arrangement with their employer who paid them a home working allowance (up to £6 per week), and employees who worked at home but didn’t receive the allowance.
Those who didn’t get the allowance could claim a deduction for the additional expenses incurred by using their home as their workplace, such as energy and telephone calls, but those extra costs were difficult to quantify so most people didn’t bother to claim.
HMRC’s change in practice has permitted employees, who are required to work at home, to claim £6 per week (£26 per month) as a deductible expense against their employment income, if they don’t receive the full homeworking allowance from their employer.
There is still a mismatch of-course, as the employee who receives the homeworking allowance has an additional £312 per year of tax-free (and NIC-free) money in their pocket. Whereas the employee who claims a tax deduction of £312 for the year will receive a tax refund of £62.40 (20% taxpayer), £124.80 (40% taxpayer) or £140.40 (45% taxpayer). These figures will vary slightly for Scottish residents. Those claimants won’t receive a refund of Class 1 NIC paid on their earnings.
Full-time or part-time?
In his blog, Martin Lewis raised a valid question over the required element of the homeworking deduction.
Where employees are given the choice of continuing to work at home or returning to the office, could the homeworking deduction still be claimed for the part of the working time spent at home?
HMRC has bowed to the pressure from Lewis, and the professional bodies, to clarify this point and has agreed that employees can claim the full £6 per week deduction even if they now split their time between their home and the office. The deduction does not need to be pro-rated if part of the employee’s working time is spent in the office and part at home.
The HMRC guidance says the employee must work at home on a regular basis to claim the deduction, so two weeks spent working at home while self-isolating won’t allow the employee to claim the homeworking deduction for the full tax year. Although ICAEW is reporting that if an employee has told HMRC they are working from home, and then later in the tax year they return to the office full time, there is no requirement for the employee to tell HMC about this change in working location.
How to claim?
HMRC is now actively encouraging employees to make claims for their homeworking costs through a new online portal that opened on 1 October. It says that over 54,800 people have already made such a claim.
Where an online claim is submitted now the employee’s PAYE code will be altered so the tax relief is given at source for the rest of this tax year.
Alternatively, the employee can claim in their self-assessment tax return after the end of the tax year, or submit a form P87, online or by post.
What about future years?
The claim for homeworking costs does not automatically roll-over to the next tax year, so the new claim will be needed for 2021/22 if the employee is still working at home in that period.
However, the ICAEW understands that HMRC will withdraw the concession for a flat rate amount to be claimed when the coronavirus pandemic is over. In that case, the employee who does not receive the allowance from their employer would have to prove they are incurring additional costs by working at home.
Deductions for the self-employed
Self-employed individuals can claim a similar simplified deduction of up to £26 per month in their accounts, but the amount that can be claimed depends on the use of the property as follows:
|Hours home used for business per month||Deduction per month|
|25 to 50||£10|
|51 to 100||£18|
|101 or more||£26|
On this basis, the employee is better off as there is no minimum time set for the employee to work at home per week or month to claim the homeworking deduction.
A self-employed person can alternatively claim the business proportion of the actual costs of running the home, which may result in a higher deduction, especially where a large proportion of the home is used.