If you've had to work from home over the last few years, you might have seen an increase in your household expenses caused by being at home for an additional 8 hours a day. Luckily, HM Revenue & Customs (HMRC) has tax relief for this to ensure you aren't left footing the entire bill by yourself.
The pandemic caused a massive spike in the number of people forced to work from home. Although the tax relief has always been there, many more people are now eligible to make a claim.
While the government mandate to work from home is no longer in place, many businesses have adopted a flexible working schedule. They've done this by hiring fully remote workers or offering a hybrid solution. As such, you may still be able to claim tax relief for the current tax year, as well as backdate claims for previous years.
Therefore in this article, we'll explain what working from home tax relief is, how to determine if you're eligible, and how to claim it. Let's dive in.
Claiming tax relief for working from home is a straightforward process. First, head to the government's tax relief portal where you can check to see if you are eligible to claim. Here you will be asked a few questions, such as if you're claiming for just this tax year or also for previous years. You will then be asked to log in to your Government Gateway User ID. If you have an account, simply log in. If not, you will have to create one. To create an account, you will need either your National Insurance number, recent payslip, P60, or a valid UK passport on hand.
Once you have logged in using your Government Gateway ID, you will be directed to a page asking for the date on which you began working from home. Correctly outline the date you started working from home and ensure you select all the tax years you are claiming a tax rebate for. Click submit, and there you have it, you have successfully claimed tax relief for your extra costs.
What is work from home tax relief?
Once the pandemic hit and millions of Britons were told to work from home, it was a respite for many people. They not only saved on time commuting to their workplace, but they also saved on fuel costs from not having to drive or spending money on public transport tickets. Although this was a welcome change for many workers, their expenses at home increased.
Since they were spending a large part of their day at home, additional household costs such as gas bills, electricity bills, and metered water bills went up – in some cases more than they were paying to commute. To offset this increase, HMRC promoted the working from home tax relief. This allowed workers to claim tax relief on some of the increased costs.
What expenses can I claim tax relief on?
Essentially, you can claim tax relief on all extra costs related to your working area at home. This involves things such as electricity bills, gas, work-related phone calls, etc. You can't use work from home tax relief on general household expenses that you would be paying for anyway, like your rent or mortgage payments.
What about internet costs?
When it comes to the cost of your internet bill, it's not as straightforward. HMRC states there are two situations. The first is someone who already has an existing broadband subscription before starting a new – work from home – job. The second is someone who takes out a new broadband subscription after starting a new career where they are required to work from home.
You cannot claim tax relief for the first scenario. This is because HMRC does not view this as an additional expense; you had the subscription before your employment. Therefore, the cost does not change, regardless of whether you're working from home or not.
On the other hand, you can claim tax relief for the second scenario. This is because the broadband subscription is a new additional expense that you wouldn't have otherwise.
Can I get tax relief if I buy office equipment?
Generally speaking, HMRC will not allow you to claim tax relief on home office equipment such as desks, chairs, or a different computer screen. HMRC does not view this as an expense claim. Still, you may be able to claim it under capital allowances instead, which work differently.
This is because tax relief claims you make on work-related expenses must meet strict criteria. The costs must be wholly, exclusively, and necessary in the performance of your duties. Keeping this in mind, a desk or chair, for example, does not satisfy these criteria.
For instance, suppose you buy these items for your job. Under HMRC's eyes, these have been purchased to assist you in your job role or, in other words, have made working at home much more comfortable for you. This does not qualify as an expense you can claim tax relief on since it is not necessary to perform your work duties. It enables you to do your job, rather than being an expense incurred while doing your job. Sure, the desk and chair will help, but they aren't necessary.
On the other hand, items like paper or ink cartridges for your printer are viewed differently as these are things that are used to do your job. Suppose you need to print and post a letter to a client. The cost of the ink, paper, envelope, and stamp are expenses you have incurred whilst doing your job. If your employer does not reimburse you for the costs, you can claim tax relief on these expenses.
How much tax relief can I claim?
There are two main ways to calculate how much tax relief you can claim. You can claim tax relief at a flat rate of £6 per week (£4 per week if you're claiming up to 5 April 2020), or you can choose to claim tax on the exact costs you have incurred.
Most people tend to go with the flat rate since it's much less hassle, and there's no need to show receipts for your costs. How much you get from the flat rate will depend on what rate taxpayer you are. A basic rate taxpayer can claim 20% of £6, which will total £1.20 per week, or £62.40 per year. Higher rate taxpayers can claim 40% of £6, which will total £2.40 per week, or £124.80 per year. Additional rate taxpayers can claim 45% of £6, which will total £2.70 per week, or £140.40 per year.
HMRC will allow you to backdate your claims up to four years, and you could end up with a sizeable tax rebate in the region of a few hundred pounds.
What if the HMRC's flat-rate tax relief doesn't cover my needs?
If you find that HMRC's estimate of £6 per week is not sufficient and you actually spent much more, you are able to apply for tax relief on a higher sum. There are two ways to go about doing this. The first option is straightforward – if you complete a Self Assessment form every year, then you can add your tax relief claim to that.
The second option will take a little longer. To proceed with this method, you will have to fill in a P87 form which can be done online on the government's website. A P87 form will enable you to claim expenses up to £2,500 and can include things such as heating, water bills, new broadband connection, etc. In order to fill in a P87 form, you will need the name of your employer and PAYE reference. You will also need to provide your job title and, most importantly, receipts to show proof of your extra expenses. If you don't have evidence to prove your extra costs, you won't be able to claim tax relief on them.
Can I claim tax relief if I'm not required to work from home?
If you're in a work arrangement where you're not required to work from home, but you are permitted to do so, this would be called a home working arrangement and you should be able to claim tax relief. For instance, if you work two days in the office and three days at home, there is a pattern to working from home and thus qualifies as a home working arrangement. Of course, such an arrangement would have to be agreed upon with your employer beforehand.
Your home working arrangement must also be in writing. This can be noted in your contract, or your employer can provide a letter confirming you are working from home as part of your duty. It's important to note that if you work from home informally or irregularly, you won't be able to claim tax relief on your expenses.
What if my employer reimburses me for my expenses?
If you incur expenses from working from home and your employer is reimbursing you for these costs, you cannot claim further tax relief on them. HMRC is very clear about the fact that in order to qualify for tax relief, your expenses should be borne by yourself.
Instead of claiming just the tax relief, some employers will compensate you for the total costs. This is why it's recommended to ask your employer for reimbursement first since it could work out much better for you financially.
What if I have unreimbursed expenses and I am on minimum wage?
Let's say you are working from home and your employer does not reimburse your expenses. Suppose you are earning minimum wage or slightly higher. In that case, you will be protected by national minimum wage rules to ensure your salary does not go below the minimum threshold. Essentially, if your expenses result in your effective hourly wage going below minimum wage, your employer must reimburse you up to the level where you reach the national minimum wage again.
It's also important to note that if you are on Universal Credit and incur expenses that your employer does not reimburse, then make sure to notify HMRC. They may be able to lower your earned income for Universal Credit, meaning you will end up with a higher award than usual.
What is the deadline for claiming tax relief for working from home?
Tax relief claims for working from home can be backdated, meaning you can claim for up to four years back. Most people reading this article will only need to claim as far back as 1 January 2020, right before the pandemic began, since this is when working from home became prevalent. But it's nice knowing that you have the option to claim further back if it applies to you.
To put this into a practical sense, if you are claiming tax relief for the 2020/21 tax year, you have until 5 April 2025 to do so, and if you are claiming for the 2021/22 tax year, you will be able to claim until 5 April 2026.
How is the tax relief paid?
When an employee makes a successful tax relief claim for working from home, HMRC can issue the tax refund as a cheque. Since you can backdate a claim as far back as four years, if a claim has been made for more than one year, you can expect to receive a lump sum payment instead of multiple cheques.
Alternatively, HMRC will adjust your tax code, meaning you will receive the tax refund directly through your wages.
Summary
Claiming tax relief for working from home is an easy process. Simply log into the tax relief portal on the government website, and you'll be able to raise a claim within 10 minutes. As long as you are, or have been, required to work from home, your claim should be successful.
Most people tend to use the flat rate as it covers the extra household costs without having to faff around with receipts and proof. But make sure your employer isn't reimbursing you for these costs since if they are, you won't be eligible to claim tax relief.