Tax free allowance for working from home

Working from home has become the norm for many under Covid-19, and since 6 April 2020 employers have been able to pay employees up to £6 a week (£26 per month) tax-free to cover their extra domestic costs.

This continues for the tax year 2021/22, according to new guidance from HMRC.

Where employees do not receive any home expense payment from their employer, they can apply to receive the tax relief directly from HMRC via its online portal 

If they did this for tax year 2020/21, they can continue to do so for tax year 2021/22, but a new claim has to be made, according to advice given by HMRC to the ICAEW.

So an employee paying 20% basic rate tax claiming the £6 a week would receive £1.20 a week in tax relief (20% of £6 a week) towards the cost of their household bills. A higher-rate taxpayer would receive £2.40 a week (40% of £6 a week).

Over a twelve-month period the employees could reduce their tax by £62.40 or £124.80 respectively.

Once an application has been approved, the online portal will adjust the worker's tax code for the current tax year to 5 April 2022 and they will receive the relief through their salary until March 2022.

According to HMRC, since April,2021 almost 800,000 employees who have been working from home during the pandemic have already claimed tax relief on household related costs.

HMRC has reminded employed workers that they may be able to claim relief for other work-related expenses, such as the cleaning of work uniforms in the case of healthcare workers.

Workers can also check with HMRC to see if they can claim relief for such items as uniforms or tools repairs or replacements, and for the payment of fees and subscriptions for their work.

Further information

Find out more about claiming tax relief on work related expenses.

Access the online portal for working from home expenses.

Employees do not need to provide evidence to show their bills have increased unless they are applying for tax relief on costs above the £6 per week flat rate.

Employees may be able to claim tax relief on the cost of:

• expenses for working from home
• repairing or replacing small tools needed to do their job (for example, scissors or an electric drill)
• cleaning, repairing or replacing specialist clothing (for example, a branded uniform or safety boots)
• business mileage (not commuting)
• travel and overnight expenses
• professional fees and subscriptions

Employees can check if they are eligible for tax relief on their expenses and claim online.

Employees could alternatively receive the tax relief as a lump sum payment if they wait and apply once the current tax year has ended.

It is understood that when the pandemic is over, the above rules will revert to the previous position under which the allowance is tax-free only where paid by employers, but that will not be until at least 6 April 2022.

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

It is also understood that where 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.

Can we help?

Our Employer Solutions team here at Bishop Fleming can assist you with any queries you may have in respect to the above and can help employers review their employee’s current domestic or overseas remote working arrangements and advise on the risks and implications of such arrangements.

Our Employer Solutions Knowledge Hub contains more information on how our team can help you attract and retain talent for your business.

For further help, please check out our Business after COVID-19: Transition Knowledge Hub.