Tax treatment of employees working from home

Working from home: Tax

With a growing number of people working from home, most of us are familiar with the best practices in terms of working from home . Here’s a refresher if you need it.

Provision of Equipment

One of the tips for home working is making sure you have a workstation set up at home. This involves having the right equipment set up. This equipment may vary depending on your job. The employer will generally provide this, as well as other necessities such as printer ink and paper.

Most employees would find it unfair to be taxed on such items that are necessary for them to do their job, and fortunately HMRC agrees. Tax legislation on this matter provides for an exemption for accommodation, supplies and services used in employment duties.

Office furniture, stationery, computer equipment, stationery and office or workshop materials and supplies are some of the items covered by the exemption from the tax legislation. Home telephone lines may also be covered if there is a clear business need for the employer to provide it. As with most exemptions, availability is contingent on the associated conditions being met.

The exemption provides that no liability to tax arises in respect of the provision for an employee of accommodation, supplies or services used by the employee in performing the duties of the employment as long as conditions A and B are met.

Condition A is that any use of the accommodation, supplies or services for private purposes by the employee or a member of the employee’s family or household is not significant.

In this context, use ‘for private purposes’ means:

  • use that is not use in performing the duties of the employee’s employment; and
  • use that is at the same time both use in performing the duties of the employee’s employment and other use.

Private use is disregarded where it is ‘not significant’. This is not defined in the legislation, but HMRC provides its interpretation at EIM21613. It states “where:

  • the employer’s policy about private use is clearly stated to the employees and sets out the circumstances in which private use may be made (this may include making the conditions clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences if this policy is not followed), and
  • any decision of the employer not to recover the costs of private use is a commercial decision, ie, based on the impractical nature of doing so, rather than a desire to reward the employee”
    it will accept that the test is met.

Household expenses

Additional household expenses may be incurred as a result of an employee working from home.

The tax legislation provides an exemption where an employer makes a payment to an employee in respect of reasonable additional household expenses that the employee incurs in carrying out the duties of the employment at home under homeworking arrangements (s316A, ITEPA 2003). ‘Homeworking arrangements’ are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home. HMRC accepts that ‘homeworking arrangements’ exist (see EIM01472) if:

  • there are arrangements between the employer and the employee; and
  • the employee must work at home under those arrangements.

Tax relief

If the employer does not the cost of working from home, the employee may be able to claim tax relief as long as the wholly, exclusively and necessary condition is met.

In practice this is difficult to achieve, and HMRC takes a harsh line where the employee chooses to work at home (denying relief) rather than being required to work at home (see EIM32760). Relief, where available, will be given only on items related to the duties, such as the cost of additional electricity or gas or business phone calls. No relief is available for expenses incurred for both business and private purposes.

HMRC has an online tool available which can be used to see if expenses incurred in working from home qualify for relief.

Good practice

In general, if employees work from home, the employer should ensure that there is a written homeworking agreement in place. This should detail the homeworking arrangements, the equipment and supplies to be provided by the employer and any expenses that will be met.

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