The tax-free payment that can help with the cost of working from home
The Chartered Institute of Taxation (CIOT) is urging employers to consider supporting employees working from home because of the Coronavirus outbreak with a tax-free payment equivalent to over £300 per year to help with the costs of higher household bills.
The payment is one of a number of measures included in a new guide produced by the CIOT on the tax implications of working from home1.
The Institute noted existing HMRC guidelines that permit employers to pay their workers who regularly work from home under an agreed arrangement a tax-free payment to help cover costs associated with higher household bills, such as electricity and gas2.
HMRC has confirmed that employers who require their employees to work from home as a result of the temporary closure of their business premises due to the Coronavirus would be able to provide the tax-free payment as a means of offsetting reasonable additional household expenses.
This payment increased to £6 per week – or £26 per month – from 6 April as a result of measures announced in the March Budget3. It is usually paid to workers in addition to their salary.
It is up to an employer to decide whether to make the payment. If they don’t, employees may be able to claim tax relief from HMRC on the additional household costs of their home office, provided they keep records of these costs and can prove to HMRC that they were ‘wholly, exclusively and necessarily’ in the performance of their work4.
Colin Ben-Nathan, chair of the CIOT’s Employment Taxes sub-committee, said:
“If normal circumstances, if an employer has an agreement with their worker to work regularly from home, then they can choose to pay them a tax-free payment to help with extra costs such as heating and lighting their home workspace.
“HMRC have confirmed that following the government’s Coronavirus guidance, employees who are working temporarily from home will be eligible to receive this tax-free payment because they currently have no appropriate office-based facilities.
“While we expect that this situation will be temporary, the extra £6 per week that is payable to employees through their regular salary payments would be a welcome boost – particularly for those on lower incomes – to help offset some of the additional costs associated with working from home."
Notes for editors
1. The CIOT’s paper, Employment Taxes: An introductory guide to the tax implications of working from home and other related expenses and benefits covers a range of tax implications for businesses and employees.
It is being regularly updated as new information emerges and can be downloaded from https://www.tax.org.uk/policy-technical/technical-news/ciot-guide-tax-implications-working-home
The measures covered in the guide include:
- Employer homeworking payments
- Employees’ unreimbursed expenses
- Employer-provided equipment, such as mobile phones, computers and printers
- Administration costs such as stationery and postage as well as telephone and internet costs
- Travel and subsistence costs, including overnight accommodation
- Company cars
- Employer provided loans
- Medical check-ups and welfare counselling
2. HMRC’s guidance on claiming tax relief for job expenses associated with working from home can be found on its website ‘Claim tax relief for your job expenses’. HMRC’s Coronavirus specific guidance can be found at ‘Check which expenses are taxable if your employee works from home due to coronavirus (COVID-19)’
3. Paragraph 2.174 of the Budget ‘Red Book’ confirmed that the flat rate deduction for homeworking will increase from £4 per week to £6 per week with effect from April 2020.
4. The rules for claiming tax relief for an office at home are far more restrictive than the exemption that permits employers to make tax-free payments to employees who are required to work from home. The CIOT understands that HMRC will only accept a claim for tax relief where no facilities were available for the employee to work at the employer’s premises and there was no choice available to the employee other than to work from home.
5. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.