Following Rishi Sunak’s first budget statement on 11 March 2020, the claim allowance was raised to £6 per week to cover household bills incurred while working remotely – effective from 6 April 2020.
While ‘every little helps’ is a well-known slogan for a national supermarket chain, it is very apparent in the current climate that we would all be advised to embrace this mantra more widely.
It is an established practice that where there is a home working arrangement in place, an employer can pay a weekly amount to its employees tax-free without scrutiny or challenge. This allowance has existed for nearly 20 years and, although we understand that it may not sound like much, for owner-managed businesses or SMEs, any amount of tax-free income is always welcome.
Can employees working from home due to COVID-19 claim expenses even if they do not have a homeworking arrangement?
Yes, as long as the employee is not choosing to work from home and is forced to do so as a direct consequence of the COVID-19 restrictions. Right now, many firms have closed their workplaces, which means their employees are required to work from home and therefore eligible to claim for increased costs. If, on the other hand, working from home is voluntary, then unfortunately you cannot claim tax relief on the bills you have to pay.
What can people claim as an expense relating to working at home?
Certain costs are excluded from relief, such as costs that would be the same whether or not the employee works at home. These include things like mortgage interest, rent, council tax or water rates.
This allowance is estimated to cover the additional household expenses incurred when the employee is working from home, such as electricity and heating.
Common expenses that can also be claimed include: the supply of one mobile phone and sim card per employee, the provision of a new broadband connection, and the use of IT equipment and office supplies.
However, it must be noted that private use of the broadband, IT equipment and office supplies must be limited to ensure it is non-taxable.
What is the process for getting reimbursed?
In April 2016, HMRC introduced an exemption for paid or reimbursed expenses. Under this exemption, qualifying expenses can be paid directly by employers free of tax without the need for an employer to apply to HMRC for a dispensation. These expenses do not need to be returned to HMRC at the end of the tax year on form P11D, and employees no longer need to make a claim to HMRC for a corresponding tax relief.
When employers do not reimburse expenses that employees have incurred, this can be deducted from an employee’s taxable income. For example, if an employer did not reimburse the cost of business travel, the employee could submit a claim to HMRC after the end of the tax year, claiming tax relief at their marginal tax rate.
Essentially, employees will need either a homeworking arrangement or have been forced to work from home due to the coronavirus, and the actual payment from their employer to get the £6 tax-free in their hands. If neither of these are in place, workers may struggle to justify amounts that can be claimed just as expenses of their employment via their tax return.”
Can people be reimbursed above £6 per week?
Payment or reimbursement to employees of up to £6 a week – or £26 a month for employees paid monthly – is non-taxable. Prior to 6 April 2020, this was £4 a week – or £18 a month for employees paid monthly.
If, as an employee, you think your costs exceed this amount, then you will need to check with your employer as to whether they will make payments of the higher amount.
If your employer does not reimburse the higher costs, you may be able to claim tax relief through your online personal tax account instead.
Do you need to keep your receipts for these purchases?
As a general rule, it is always wise to keep records and receipts of all expenses being claimed, should HMRC ever enquire into your tax affairs.
This would prove especially important if your employer is reimbursing you for amounts in excess of £6 a week.
Has there been any information released by HMRC about new relief measures for those now working at home?
Although it is lesser known, HMRC has released a piece of information that relates to salary sacrifice arrangements as a new measurement of relief.
Normally, an employee cannot freely switch out of a salary sacrifice scheme unless there is a significant life event. HMRC has agreed that Covid-19 counts as one of these life events that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly, so relief can be awarded in this instance.
Is there any other non-taxable support available?
It is worth noting that interest free loans of up to £10,000 in a tax year are non-taxable. Your employer may be able to provide a loan to assist you in case of hardship, which could be invaluable in the current climate.
However, always ensure there is clear agreement in writing between you and your employer as to the terms of the loan, particularly in relation to repayment.