Working from home: a guide for employees working from home due to Coronavirus.  

At a glance

  • Employees may be required to work from home in order to self-isolate or if their workplace has closed as a result of government measures to prevent the spread of Coronavirus.
  • Additional costs incurred by such employees may or may not be reimbursed by their employer.
  • If costs are not reimbursed, tax relief may be claimed directly from HMRC.
  • Employees who work from home by choice are treated differently. They cannot claim tax relief from HMRC if their employer does not reimburse their expenses.
  • When home-working expenses are reimbursed by employers to their employees, the tax treatment will depend on the nature of the expense.
  • The general rule is that a deduction for employment expenses is allowed from earnings if the necessary conditions of s.336 ITEPA 2003 are met, but this has been partially relaxed for 2020-21. 

Special measures: purchase of equipment COVID-19 homeworkers

As announced by the Financial Secretary to the Treasury on 13 May 2020:

"To support employees who are working from home and need to purchase home office equipment as a result of the Coronavirus outbreak, a temporary tax exemption and National Insurance disregard will come into effect to ensure that the expense will not attract tax and NICs liabilities where reimbursed by the employer. The expenditure must meet the following two conditions to be eligible for relief:

  1. That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak.
  2. The provision of the equipment would have been exempt from Income Tax if it had been provided directly to the employee by or on behalf of the employer (under section 316 of ITEPA).

The exemption is a temporary measure and initially was to have effect from the day after the regulations came into force until the end of the tax year 2020-21 but has been extended to 2021-22.

HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any reimbursed payments made from 16 March 2020 (the date the government recommended working from home) to the date these regulations take effect.

This measure is being announced outside the normal fiscal process in order to ensure that employers and employees are able effectively to manage their working from home arrangements as soon as possible."

Expenses reimbursed to employees 

Employees who can demonstrate that the conditions below of section 336 ITEPA 2003 have been met may claim a proportion of certain household expenses from their employer if the employer agrees.

  1. The employee is obliged to incur and pay the home-working expenses as a holder of the employment.
  2. The home-working expenses are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. 

As an alternative, HMRC allows a Home Working Allowance of £6 per week from 6 April 2020 (£4 per week up to 5 April 2020) to be paid to employees for additional household expenses incurred while working from home, tax-free.

If a Broadband internet connection is necessary to work from home and one was not previously available, the broadband fee can also be reimbursed to the employee and is non-taxable. If the employee already has broadband installed for private use, no claim is allowed.

Some expenses reimbursed to employees are taxable. For example, Hotel expenses reimbursed to employees who cannot self-isolate in their own home or expenses paid under voluntary home-working arrangements, which are not affected by COVID-19.

Income Tax relief for non-reimbursed expenses

If an employee is working at home on a regular basis as a result of Coronavirus but has not been reimbursed the additional costs by their employer, the employee may claim a deduction from earnings. HMRC have confirmed that this relaxation to the s.336 rules will apply until the end of the pandemic (previously 5 April 2021) as long as the employee is not working at home by choice. There must be a discussion with the employer and if the employer decides that the employee should work from home, the deduction will be available.

In practice, most employees will have been mandated to work from home as a result of Government guidance at some point during 2020-21.

  • HMRC have advised that as long as an employee has been required to work from home at some point during 2020-21 they will accept a claim for home-working for the whole 2020-21 tax year. This is extended to 2021-22 up until the end of the pandemic (previously it was to end on 5 April 2021).
  • Relief will not be restricted if the employee returns to their workplace before 6 April 2021 or if the employee is only working from home on a part-time basis. 

As an alternative to claiming actual expenses which can be impractical to calculate, employees may claim HMRC's home working allowance of £6 per week. When considering which actual expenses may be claimed, see Working from home (employer/ee)

HMRC specify in their guidance that the Form P87 claim should be made:

  1. Online if it relates to multiple tax years and up to five different jobs. A new online micro-service launched on 1 October 2020 which automatically gives relief for the whole 2020-21 tax year. 
  2. By post, if made on behalf of someone else or it relates to more than five different jobs.
  3. By phone, if a claim has already been made in a previous year and the total expenses are less than £1,000 or £2,500 if including professional fees.

Claims will not automatically be rolled forward to 2021-22 however HMRC's  have confirmed that they will to extend the relaxed approach to claims to that tax year. Separate claims will need to be made for 2021-22.

Useful guides on this topic

Working from home (employer/ee)
What expenses can employees claim for homeworking? Are the rules the same for the self-employed? How do you make a claim?

Directors: working from home
Similar rules apply to home working directors as other employees; however, a director is more likely to be able to charge rent and there may be some additional issues and complications by virtue of their office

Tax-free benefits and perks
What are the key tax-free benefits or 'perks' can be used to incentivise your staff?

Employee expenses: broadband
What is the Benefit In Kind position when an employer provides an employee with broadband? How does this change depending on who makes the contract with the provider? 

Exemption for paid and reimbursed expenses
When can expenses reimbursed to employees be exempt from tax? 

Pecuniary liabilities 
What is a pecuniary liability? What is the tax treatment? Are NICs due?

Can I charge my company rent for use of my home?
Can company owners and directors charge their company rent? What are the things to be considered? 

External links

Financial Secretary to the Treasury announcement on 13 May 2020

HMRC guidance on Taxable and non-taxable expenses if an employee works from home due to Coronavirus

HMRC guidance on Making a Form P87 claim.

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