The COVID-19 pandemic has compelled large swathes of the working population to function from home. While working from home is the new norm, will employees incur additional tax? What expenses are deductible, and what are the tax rules?
Do you also have such questions? If yes, don’t fret as you are on the right page. Here we are going to consider the tax implications of working from home.
The Basic Considerations
Before moving ahead, let’s first understand that tax rules change based on your working status. So, the rules depend on whether you are a sole trader, self-employed, or an employee.
In any case, if you want to maximise your tax position, it is advisable to maintain records. Failing to do so, HMRC may mend the tax position, which can cause several years’ worth of interest, tax, and penalties.
Some General Rules
Usually, any cost reimbursed to or paid on behalf of an employee will be taxable. You will then have to claim the tax relief yourself and prove that the expenses incurred were crucial in carrying out your job.
Besides, the tax cost also differs according to how the services were provided. For instance, the tax relief is more generous if the service was provided by the employer than the employee buying it for themselves.
So, forward planning and a bit of advice can be fruitful.
Work from Home Exemption
Here it is essential to understand that the use of home as office allows certain freedom from a tax charge. The additional household expenses paid by the employer are tax free.
So, the additional costs of lighting, heating, and metered water cost are included. From 6th April 2020, the flat rate to cover the additional cost is increased from £4 a week to £6 a week.
However, tax-free payments are allowed only under the following circumstances:
- The employee carries out the central duties of the job from home
- These duties are not possible without using appropriate facilities
- Those facilities are too far away or not available on the employer’s premises
- At no time the employer is allowed to select between working elsewhere or at the employer’s premises.
If payments are made outside the rules, no exemption is allowable.
A temporary exemption is introduced for an employer to help to work from home employees due to the COVID-19 pandemic. It covers reimbursing an employee for getting home equipment such as a chair, table, or monitor.
The tax exemption exists as long as:
- The equipment was bought to support the employee working from home due to the pandemic
- It would have been an exempt if provided to your employee directly by you or on your behalf
- These arrangements are available to all your employees
Besides, travelling costs are also exempt.
How Pearson Mckinsey Can Help You?
If your business in the Wormley or Walthamstow area and would like any help, we at Pearson McKinsey can guide you about tax relief and homeworking for employees.