Did you know that as a UK employer you are entitled to pay your employees who work from home, fully or partially, (this includes working from home due to a COVID 19 related illness) a working from home allowance.
This working from home allowance can be paid to your employees as expenses free of tax and NI through your payroll.
What’s included in the allowance?
Homeworking expenses include:
- equipment, services or supplies you provide to employees who work from home (for example computers, office furniture, internet access, pens and paper)
- additional household expenses, such as gas or electricity charges, for employees who need to work from home.
Is there a limit to how much I can pay employees tax and NI free?
Yes, listed below are the current limits enforced by HMRC:
Weekly/monthly tax limits:
2020 to 2021 onwards
£6.00 (or £26 a month for employees paid monthly)
2012 to 2013 — 2019 to 2020
£4.00 (or £18 a month for employees paid monthly)
An employer can also choose to back date these allowances
Can employees still claim tax relief if the employer doesn’t pay this allowance?
Yes, in the instance employers do not pay a working from home allowance to cover the costs of rising utility bills employees can still gain tax relief on the HMRC weekly or monthly limit as long as they are working from home.
An employee can only receive the allowance or the tax relief not both.
How much tax relief can the employee claim?
An employee can claim either tax relief on the following:
- £6 a week or £26 per month from 6 April 2020 – (you will not need to keep evidence of your extra costs).
- the exact amount of extra costs you’ve incurred above the weekly amount - you’ll need evidence such as receipts, bills or contracts
Employees will receive tax relief based upon the rate at which they pay income tax.
For example, if the employee pay the 20% basic rate of tax and claim tax relief on £6 a week they would receive £1.20 per week in tax relief (20% of £6).
This will be given to the employee through a tax code notification change that will be sent directly to the employee’s payroll provider through their RTI download.
The employee will also receive a P800 tax code notice from HMRC which will explain how their new tax code has been calculated.
Please visit the below HMRC websites for more information on the working from home allowance:
Alternatively, please contact our payroll team for more information on payroll and benefits.
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