More employees than ever before have been forced to work from home during the coronavirus crisis.
This has some tax implications for employees working from home.
In this blog, we’ll share with you everything you need to know about Homeworking Arrangements.
What Are Homeworking Arrangements?
When an employee works from home, they incur additional costs that they wouldn’t normally accumulate if they worked in an office.
For example, the need to keep their house warm and turn the heating on or the need to have the lights on if it’s a bit of a dreary day.
These things all incur extra costs for the employee who is working from home. These are costs that they wouldn’t naturally incur if they were working in an office.
Not all Homeworking costs are covered, though. These are called ‘fixed costs’—for example, the internet and their phone line.
Working from home does not increase these ‘fixed cost’ bills because the employee would normally pay for them anyway. Working from home has not increased the financial obligation to make these payments.
The general rule is this: if a cost has increased due to working from home, then there are some tax effects that come with this.
What Are The Rules For Payments?
Of course, the coronavirus has meant that many employees are in this situation right now.
As an employer, you will be able to make payments to your employees in order to cover these costs. These payments are tax-free receipts.
The payments must be ‘reasonable’ and apply when Homeworking is part of an arrangement where the employee regularly works from home.
HMRC says that these ‘reasonable’ payments should be £208 a year at most. This is equivalent to £4 a week.
If the payments don’t exceed this amount, then the employer can make the payments and won’t have to keep any records.
However, if the payments exceed this ‘reasonable’ figure set by HMRC, then the employer should keep records.
What If An Employer Doesn’t Offer Homeworking Costs?
If an employee is not offered the Homeworking costs by their employer, then they can deduct the costs under a different method via HMRC instead.
Getting this support can be tough. They must meet these criteria:
- Work from home must be integral to the worker’s role and duties. This is usually determined by the tasks that earn revenue.
- Their duties require a setting that is provided within the home.
- The work cannot be done at the office/ or employer’s premises, or it is unreasonable to ask them to travel a long distance every day. This would be particularly applicable given the COVID measures.
- There was no choice at the time of employment to choose where they worked.
Usually, an employee will need all four of these in place to get the Homeworking costs deducted themselves. Simply choosing to work from home will not count.
Again, in this situation, the employee can only deduct additional costs such as lights and heating rather than fixed costs (as mentioned earlier). The employee will be required to keep track of these.
Remember, these costs must be exclusively necessary to the employees’ work duties at home.