Coronavirus working from home tax concession to stop in April 2022
From 6 April 2020, employees have been able to claim tax relief, based on a flat rate £6 pw equivalent to £312 pa, if they have to work from home because of Coronavirus.
The tax relief is worth between £62 and £125 pa. This is based on 20% of £312 pa or 40% of £312, depending on whether the employee was a basic rate or higher rate taxpayer in the tax year.
The £312 is a fixed allowance to help cover the additional costs of working from home, e.g. extra utility bills. It should be emphasised that the £312 is not a cash amount that can be claimed from an employer or the government. However, it is only the tax effect, by reducing and employees taxable income by £312, which can be claimed.
Of course, an employer may agree to pay an amount to their employee to cover the costs of working from home. If there is a profit element then this would be taxable. The details that follow will highlight any relevant costs that can be deducted from an amount paid by an employer.
The allowance can be claimed in both tax years 2020-21 and 2021/22 if an employee was required to work from home at some point during each of the two tax years. By concession, whilst the amount is defined as £6 pw, it allows the full £312 pa to be claimed for the full tax even if the employee only spent a single day working from home. If an employee chooses voluntarily to work from home then they are not entitled to the concession allowance.
The government has reviewed the tax concession and has decided to stop the Coronavirus related working from home tax concession from 6 April 2022.
The government is no longer suggesting individuals or employers, which have employees, should work from home. Accordingly, as this was only expected to be a temporary, the special tax concession is now being dropped.
The tax rules
The ability to claim tax relief by employees on employment related expenses has always been difficult. This is because the statutory test as to what can be claimed for tax purposes is difficult to achieve in practice.
A business, whether that be a self-employed sole trader, partnership or a limited company only has to claim that an expense has been incurred ‘wholly and exclusively for the purpose of the trade’ to be able to claim tax relief on the expense. Therefore, if the business decides to pay out for home office facilities for one of its business owners, in the case of sole traders and partnerships, or employees or directors, and so long as the expense has been incurred ‘wholly and exclusively for the purpose of the trade’ then the expense can be claimed for tax purposes.
For an employee to be able to claim tax relief on expenses the amount must have been incurred ‘wholly and exclusively and necessarily in the performance of the employment’. Generally speaking, there is no necessity to work from home, only a voluntary choice by an employee. It is only when there is a necessity, which is normally stipulate by an employment contract, that the costs of working from home can be claimed. Furthermore, it would only be the extra costs incurred as a result of working from home that would be considered.
Some employees are not provided with a work space in an office at their employers. This can be because their employer is many hundreds of miles away, and it is therefore not practicable to commute to an office on a daily basis. Alternatively, the terms of the employment may not require an employee to the office based e.g. a regionally based employee whose job role is to work in a geographical area many miles away from the head office or other offices of the business. Nowadays, and probably even more after Coronavirus, many employers have decided not to have physical offices. In this case, it is a practical necessity for an employee to provide their own facilities, which could be at home.
‘Wholly and exclusively’ is the terminology defined in the Taxes Acts. It is not always well understood. It means that there must be no duality of purpose i.e. both business and private use of the expenditure incurred. You may therefore think if there is some private use of a home office that the expense cannot be claimed for tax purposes. However, that is not always the case.
For an unincorporated business, like a sole trader or partnership, the tax rules permit an apportionment of actual expenses on a fair and reasonable basis.
If it can be argued that, say, 20% of the total time spent in the home office is business related then 20% of the costs can be claimed for tax purposes. Whilst there may be some private use of the office, e.g. before or after work, it is being used ‘wholly and exclusively’ for the purpose of business during business hours.
The rules are different for incorporated businesses e.g. limited companies or Limited Liability Partnerships (LLP). It would most probably be an employee or director that would make a tax claim for expenses incurred on their Tax Return. In this case, they can’t apportion total costs of running a home office. Where the employee’s contract necessitates them working from home, rather than choosing voluntarily to work from home, then they can claim for the extra costs of running the home office.
We should therefore be looking at the extra gas and electricity etc of working from home. This would therefore stop the ability to claim for a proportion of fixed costs e.g. rent, mortgage payments, council tax, insurance etc
Back to normal
After 5 April 2022, if an employee wishes to claim tax relief for employment related expenses they will need to comply with the well-established strict traditional tax rules, and only if they have to work from home. Furthermore, claims can only be made for the actual time they have to work from home and the concession that even working from home for one day permits a whole year’s claim will stop.
HMRC says that to be able to claim tax relief, if applicable, an employee can only consider costs like gas and electricity, metered water business phone calls, including dial-up internet access etc.
HMRC say that you cannot claim for the whole bill, just the part that relates to your work i.e. the extra costs incurred by working from home and that you’ll need evidence, such as receipts, bills or contracts, to be able to claim tax relief.
This blog article is primarily concerned with Coronavirus related implications of working from home. For a much fuller consideration of the tax implications please see another blog article relating to ‘Claim for use of home or homeworking expenses’. This considers the detailed rules relating to unincorporated and incorporated businesses. There may also be tax advantages for an employee/director charging a formal rent for home office facilities rather than claiming the actual costs or apportioned costs of working from home.
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