Understanding the Homeworking Allowance: Payments for working at home
In recent times, many employees have transitioned to working from home, necessitating a clear understanding of the financial implications. This article aims to clarify the concept of Homeworking Allowance and its tax implications for both employers and employees.
Homeworking Allowance:
Employers have the option to reimburse employees for reasonable additional expenses incurred while working from home. These may include heating, lighting, metered water, and increased charges for Internet access, home contents insurance, or business telephone calls. However, it's important to note that employees do not have an automatic right to such payments unless explicitly agreed upon by the employer.
Tax Exempt Payments:
Employers can provide tax-exempt payments for homeworking allowance, up to certain limits, without further evidence. These limits were £4 a week/£18 per month before 5 April 2020, and £6 a week/£27 per month from 6 April 2020 onwards. To qualify, employees must regularly perform some or all of their duties at home, and the amount paid should not exceed their additional household expenses.
Payments Above the Limit:
Payments exceeding the weekly limit can still be tax-exempt, provided the employee provides evidence of their additional costs, and the payment covers only these costs.
Multiple Employers:
If an employee receives a homeworking allowance from multiple employers, each employer can pay up to £18 a month tax-free, ensuring the total amount does not exceed the employee's additional household expenses.
Telephone and Internet:
Reimbursements for telephone and internet costs may be exempt from tax in specific circumstances, but contributions towards existing costs are generally taxable unless used solely for business purposes.
Equipment:
Employers providing equipment for home use are not required to report or pay tax if the equipment is used solely for business purposes or if private use is insignificant.
Guidance:
For detailed guidance on expenses and benefits related to homeworking, refer to HMRC's online resources listed below:
Homeworking Expenses and Benefits
Subscriptions and Professional Fees
This guidance serves to aid in understanding relevant legislation and guidance but does not constitute legal advice. Individual circumstances may vary, and adherence to HMRC guidance is advised to ensure compliance with the law. The Parkinson Partnership LLP accepts no liability for any loss resulting from non-compliance with HMRC regulations.