Homeworking expenses and tax rules you should know

Blake Morgan Partner and tax specialist Cathy Bryant looks at what you need to know in an article first published in Business Matters Magazine on 19 July.

Employers and employees are having conversations around agile or smart working, and getting ready for the day when working from home is no longer mandated but, rather, a choice. In the last 16 months, we have discovered a different way of working and managing our lives in a way that gives us greater flexibility.

Employers have also discovered that productivity does not necessarily decrease as a result of home working, and some have downsized their office space with the full expectation that homeworking (or smart working) will now be the norm rather than the exception.

The temporary COVID-19 exemption to homeworking expenses ends in April 2022.

The homeworking expenses exemption applies when:

• Equipment is obtained solely to enable the employee to work from home because of the pandemic
• It would have been exempt from income tax if provided directly to the employee, either by the employer or on their behalf
• Such arrangements are available to all employees generally on similar terms

In the absence of the exemption, general rules apply, which are:

• Equipment, services and supplies provided to an employee who works from home can be fully expensed if they are provided only for business purposes, and the personal use is insignificant.
• For household expenses in addition to the above to be allowable, employees need to work from home, either because the equipment they need is not available at the employer’s workplace, or their work means they live too far away from their workplace to travel there every day. In other words, it is not a choice to work from home. The amounts that can be claimed back are quite limited (for example, £26 a month for monthly paid employees). The employer can choose to reimburse actual costs in the alternative, but this would require employees to keep records of the expenses incurred.

Employers setting up smart working policies need to carefully consider the following issues now before the COVID-19 homeworking expenses exemption comes to an end:

• Employees must be able to show a regular home working pattern. The days per week worked at home can vary, but there must at least be an arrangement that requires the employee to work, for example, two days a week at home. Ensuring this is in writing would be good practice.
• Whether to reimburse costs or to ask employees to claim the tax relief themselves and this decision should also be communicated in good time to employees.
• How much will the employer reimburse: the full cost incurred by employees or the fixed costs? Employees will need to know if they should be keeping records and how these must be kept.

Read the article in full here. and find out more about our Corporate and Business Tax offering here.