A changing workplace: Tax relief and homeworking

While how we operate away from the office has been managed for well over a year now, many are still unaware of the available tax relief.

Data from the Office for National Statistics showed that 25.9 per cent of the employed population (8.4 million people) were completing duties away from their usual workplace in 2020; that’s a significant amount of people that could be eligible for tax relief.

There are some simple and effective ways in which to claim tax back when working from home – but there are changes ahead.

What can my employees claim?
The rules around claiming tax relief when working at home have been relaxed in the last 17 months due to the impact that the pandemic has had on our standard working practices.

HMRC received more than 3 million claims for this tax relief in the 2020/21 tax year, and over 550,000 employed workers have already claimed and are benefitting from the tax relief in the year 2021/22.

If your employees are working from home and you are not reimbursing their additional household expenses, they are entitled to claim tax relief on a flat rate cost of £6 a week without needing to provide evidence of the extra costs they are incurring. This has risen from £4 in previous tax years to accommodate the sharp increase in hours spent working remotely. Employees that are required to work from home at any point during the tax year due to government restrictions can claim relief and if your team aren’t doing it, you should encourage them to.

Using the GOV.UK service is a quick, easy and free way to claim this, but remember, if someone has already made a claim in a previous tax year, they’ll still have to make a new claim for 2021/22.

In the event that your employees are incurring costs of more than £6 per week they may decide to seek tax relief on their actual costs instead but a claim will be limited; only additional costs incurred on heating, lighting, water and potentially business calls as a result of homeworking will qualify for relief and claims will need to be justified by evidence such as receipts, bills or contracts.

What makes an employee a homeworker?
Though an exception has been made in both this tax year and the previous one, the rules surrounding who ‘counts’ as a true homeworker are generally quite strict. This is particularly important to note for those organisations adopting a hybrid working model in future.

Until April 2022 employees can claim tax relief for additional costs that they’ve incurred because they’ve been working from home in that time. As employers, you can also choose to reimburse those expenses on a tax-free basis.

However, post 2022, the relaxation of the rules will no longer be in place and this is where things start to get a little more complex. If you don’t currently reimburse your employees expenses and they wish to continue claiming tax relief on the expenses they are incurring they must be able to demonstrate that they are true home workers to make these additional claims. HMRC will generally accept that a home is a workplace where:

1. The employee performs substantive duties of their employment from home.
   
2. Those duties require the use of appropriate facilities that are not available on the premises - if the employee has a desk and office space available, but aren’t using it, they will not be classified as a homeworker.
   
3. The employee is told to work from home by their employer - the employee can’t choose their workplace status. The employer must tell them that they must work from home, the employee cannot have a choice if they are to be classified as a homeworker.

Re-evaluating your employees home working status post-April 2022
The backdrop for much discussion around tax relief has been to do with the coronavirus pandemic. However, as the world slowly opens up once more, and the economy unlocks, the relaxation of taxation will change.

So, what does this mean for workers post-April 2022? At this stage, the complete definitions are not clear, but the government could consider a structured review from employees and employers alike that explores the state of remote working on personal and business finances.

At present anybody who has been claiming tax relief on their homeworking expenses must look at their employment contract before the anticipated reversion to the original rules in April 2022 and will potentially need to have a conversation with their employer to make them a true homeworker – if that's what they're going to be.

If your business opts to take on a hybrid model of working which gives your employees a choice, it’s unlikely that they will be able to continue claiming tax relief for the costs they are incurring when they do work from home, but you can choose to reimburse them as an alternative.

Whatever the future working practices the rules surrounding the tax relief available on homeworking expenditure will soon be tightening so be sure to understand how this will impact your employees and review your contracts and policies ahead of April 2022.

Stephanie Hurst