As modern working practices change in line with technological advances and the changing needs of business, there are now around 1.5 million employees who work remotely from home. Contributor David Redfern, Director – DSR Tax Claims Ltd
Homeworking is often seen as an attractive option for employers and employees alike, with employers benefiting from reduced operating costs while employees gain from the ability to work flexibly around family commitments while reducing their commuting time. But while employers see their costs decrease, homeworkers can find their household bills on the rise. How should any employer reimbursement of those bills be treated for taxation purposes? Tax preparation specialist explains how homeworking expenses should be reimbursed.
Introduced in the Finance Act of 2003, an exemption allows employers to reimburse homeworking employees for “reasonable additional costs” arising from performing their employment duties at home. These reimbursement payments are tax-exempt providing they meet HMRC’s conditions. Redfern explained “This exemption only applies to payments made by employers with regard to reimbursing those costs incurred by homeworking employees.
It does not allow homeworkers to make a deduction for tax relief for those costs if they are not reimbursed by their employer. In order for employees to be reimbursed for these expenses, they must meet HMRC’s definition of a homeworker, which requires there to be an arrangement between the employer and employee and for the homeworking to take place on a regular basis. While such an arrangement doesn’t need to be in writing, any expenses incurred by informal ad-hoc homeworking cannot be reimbursed”. The homeworking arrangements do not need to apply for all employees. The exemption does not cover employees who take work home with them to complete during evenings and weekends – it only covers employees who work at home instead of on employer premises by arrangement with said employer.
HMRC regulations state that reasonable additional household expenses can be reimbursed by the employer without attracting an additional tax burden. Redfern stated “HMRC looks at those increases in household expenses which can be reasonably attributed to working from home, such as extra heating and lighting, increased water costs where water supply is metered, business phone calls and sometimes home contents insurance, depending on the details of the policy. Where an area of the home is set aside solely for the purpose of homeworking, this can potentially incur business rates which would also be reimbursable. However certain costs can’t be reimbursed – mortgage costs, rent, council tax and water rates are all considered to be the same whether a person works from home or not so cannot be considered to be additional costs. Any home alterations to allow homeworking, including the purchase of furniture or equipment, are also not reimbursable under HMRC rules, although there is no benefit charge for equipment loaned to an employee for this purpose”. Broadband charges would only be allowed where the homeworker had not previously being paying for broadband, otherwise the cost is not considered to be an additional cost incurred due to homeworking.
Flat-rate expenses can make reimbursing additional homeworking costs simpler for employers and employees alike. Since April 2012, employers have been able to reimburse a flat rate of £4 per week, or £18 per month to cover additional heating and lighting costs without the need for detailed record keeping. Redfern added “Where an employer chooses to reimburse actual costs, rather than using the flat-rate expenses scheme, detailed records will be required as evidence to support the reimbursement – however, reimbursements are not allowable where the employee has chosen to work from home – these can only be reimbursed tax free where an employee has to work from home on a regular basis”. Simplified expenses for self-employed workers are allowable at different rates, depending on the number of hours worked per month. Simplified expenses are claimed through Self- Assessment. .”