Employees’ homeworking costs

The legislation specifically allows payments made by employers to employees to cover homeworker’s additional household expenses to be tax-free in certain circumstances.

‘Exempt payments can be made to meet or reimburse reasonable additional household expenses that an employee incurs in carrying out the duties of the employment at home under homeworking arrangements. The additional costs of heating and lighting the work area or the metered cost of increased water use. There might also be increased charges for Internet access, home contents insurance or business telephone calls. The additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates.

Household expenses: How much can be reimbursed?

From 6 April 2020 one can agree to a payment of £6 per week or £26 per month for monthly paid employees to an employee working regularly at home without the employer having to justify the amount paid. If the £6 guideline rate is paid the employee does not have to keep any records to demonstrate the additional expenditure.

For other home expenses: Before a deduction can be permitted for a household expense it must be demonstrated that the expense has been incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

With effect from 6 April 2000, Assets and services provided to employees to enable them to do their jobs are exempt from tax where the private use is not significant. This is mainly intended to cover the private use of employer-provided computers but it also applies to the private use of items such as telephones, faxes and photocopiers.

Self-employed homeworking costs

Use of home: Expense is only allowable as a deduction if it is incurred ‘wholly and exclusively for the purposes of the trade’. Wholly and exclusively does not mean that: • business expenditure must be separately billed, or • part of the home must be permanently used for business purposes and not used for any other purpose at any other time.

Apportioning the expenditure.

The factors to be taken into account when apportioning an expense include: • Area, • Usage, • Time:

The method of apportioning an expense depends on the relative importance of each of these factors.

The extent of business use is a question of fact. The amount claimed must be consistent with the nature of the taxpayer’s business.

Deductions at fixed rates

A person can make a fixed rate claim instead of actual costs which is the total of the allowable amounts below for each month, or part of a month, falling within the period, where the number of hours worked in a month (or part) is the number of hours spent wholly and exclusively on work done by the person wholly and exclusively for the purposes of the trade. If the person has more than one home, only a single claim is allowed.

Number of hours worked allowable amounts are 25 hours or more £10, 51 hours or more £18, and 101 hours or more £26.