What Expenses Can You Pay to Employees Working from Home?

What Expenses Can You Pay to Employees Working from Home?
  • HMRC has a flat rate you are permitted to pay to your employees who work from home.  The 2020 Spring Budget increased this from £4 to £6 per week (£26pcm) from 6th April.
  • Qualifying individuals are those whose employers have previously agreed that part of their role is to work from home (ideally this is stated in their contract of employment). It is not for one-offs or the odd bit of weekend work… it should form part of their normal established working practice. 
  • However during the pandemic, whilst offices are closed, social distancing is required and as a consequence employees are working from home, HMRC accepts this as normal working practice. 
  • If you wish (it is not contractual) you may therefore pay those individuals up to £26pcm, tax-free to the employee, and tax-deductible for the business. 
  • If your employee incurs more than £26pcm, you are permitted to pay the increased amount.  However, the employee must be able to justify the enhanced amounts (evidenced through supplier invoices).  It is important to demonstrate the costs have increased as a result of working from home, and are not ordinarily payable such as mortgage interest or insurance costs.
  • If it is company policy not to pay either the flat rate or additional costs, employees can make a claim for the expenses against their taxable income.  However, the rules are so much tighter.
    • The work must be substantive or central to doing their job. So training or one-off assignments would be excluded.
    • The duties are of such a nature that they cannot be performed without appropriate facilities.
    • A qualifying example might be work that requires an office type environment that can be replicated at home. 
    • And no such appropriate facilities are available on the employer’s premises (for example a field sales executive based in Inverness who’s employers offices were in Manchester)
    • The employee cannot choose between working from home or at their employers premises. The employee must have been recruited on the basis they will work from home, or their circumstances changed so that attending the office is no longer appropriate. 

The pandemic therefore meets all of the criteria

  • The work is central to what they do (otherwise they’d be furloughed);
  • The duties require the use of the home to complete them (they are not currently allowed anywhere);
  • There are no appropriate facilities available at their employers (because the office is closed); and
  • The employee has no other choice than to work from home.

The employee can then choose to claim the standard £24pcm, or the actual additional costs if they are higher.  And this can be done by simply contacting HMRC with their unique tax reference to hand, or via their SA if they do one.