Working from home tax relief continues, but new claims required

Normally, employers can pay a tax-free allowance of up to £6 per week/£26 per month to employees required to work from home. During the coronavirus pandemic, employees can claim tax relief for this amount when employers do not reimburse costs.

The allowance is to cover tax-deductible additional costs that employees who are required to work from home have incurred, such as heating and lighting the workroom, and business telephone calls.

The maximum amount reimbursed on which tax relief is allowed is £4 per week up to 5 April 2020 and £6 per week thereafter. Alternatively, employers can reimburse actual costs, subject to the employee being able to provide evidence of the amounts incurred, such as phone bills.

Where employees are not reimbursed by their employers, it is not normally possible to claim tax relief for any additional costs of working from home.

However, a relaxation was announced in a parliamentary question answered on 27 March 2020. The change enables employees working at home because of COVID-19 to claim a deduction (under s336, ITEPA 2003) where they have not been reimbursed by their employer (which would be exempt under s316A, ITEPA 2003).

This relaxation means employees who are not reimbursed by their employer can claim tax relief in their tax returns (self assessment return or a postal form P87) or via the government gateway to claim tax relief in-year through their PAYE code. (To find out which route to use, visit HMRC’s online claims checker).

Where claims were made in the 2020/21 tax year, these will not be automatically rolled forward. Where employees continue to work from home, a new claim will need to be made for the 2021/22 tax year.

ICAEW understands that once the pandemic is over, these rules will revert to the previous position under which the allowance is tax-free only where paid by employers.

HMRC has previously confirmed that the £6 per week/£26 per month is available in full, even if an employee splits their time between home and office (ie, the amount does not need to be pro-rated over the number of days spent each week at home and in the office.)

ICAEW understands that if an employee who has told HMRC that they are working from home returns to working in the office, there is no requirement for the employee to tell HMRC, so the relief can apply to the whole of the tax year.

The relaxation to allow tax relief to be claimed during the pandemic is explained in HMRC’s guidance at EIM32815 and the normal conditions that need to be met are in EIM32760. See EIM32825 for the relationship between:

• Employees’ expenses deductible under s336, ITEPA 2003, and
• Reimbursements by employers exempted under s316A, ITEPA 2003.

On 13 May HMRC confirmed that more than 550,000 people have already claimed the working from home tax relief for 2021/22 on top of the three million claims received for 2020/21. HMRC has published an eligibility checker to help employees understand whether they are able to claim the relief.

HMRC also confirmed that employees required to work from home last year and did not claim for the relief are still able to do so. Backdated claims can be made for up to four years.