Simon Thomas from Ridgefield Consulting on how to claim tax relief as an employee when working from home.
Over the last 18 months working from home has become the new normal for many. Before the coronavirus pandemic, working from home was often viewed as a luxury or perk of the job. This is no longer the case, with many employers requiring their employees to work from home.
However, working from home is likely to incur additional costs including higher utility bills, which is why employees have always been entitled to tax relief where they are expected to work from home regularly (whether full-time or part-time).
The tax relief available is at a fixed rate of £26 per month. Your employer is able to pay this direct to you on top of your salary and this amount will not be subject to income tax or national insurance. However, employers are not legally obliged to pay this amount to you. If your employers do not agree to do so, you can claim directly through HMRC.
To be eligible to claim tax relief as a result of working from home, you must meet all of the below conditions:
Be able to show that you have been paying higher costs due to working from home
Not be receiving any working from home allowance from your employer
Must have been told to work from home by your employer (you cannot claim if you chose to work from home)
Not pay tax via self-assessment (if you pay tax via self-assessment, you can only claim via your tax return and not through HMRC)
If you are still unsure if you are eligible to claim there is a useful tool on the government website that can help.
Instead of receiving £26 per month as you would have been if it had been paid by your employer, you will instead receive weekly or monthly tax relief (depending on how often you are paid). This means instead of seeing more pay on your payslip, you will see less tax being deducted depending on your income tax band:
Basic rate taxpayer (20%): £1.20 per week or £5.20 per month
Higher rate taxpayer (40%): £2.40 per week or £10.40 per month
Additional rate taxpayer (45%): £2.70 per week or £11.70 per month
To claim working from home tax relief you can use the HMRC working from home tax relief portal. To claim via the online portal, you will need a Government Gateway user ID and password, which you will need to create if you haven’t already got one.
Once you have created your Government Gateway ID you can then continue to apply online. Once logged in you will start by stating the date you started working from home. Your PAYE tax code will then automatically change and each month you will pay slightly less tax on your earnings. You are also able to reclaim for the previous year if you haven’t claimed for it already.
Claims for the previous tax year will be paid as a lump sum into your salary. If you are self-employed you will need to be aware that the process is different, and you will not be able to claim the same way as employees.
*Simon Thomas is Managing Director of Ridgefield Consulting, a Chartered Accountants based in Oxford.