Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
What happens if your employees work from home?
If your employees work from home, you are bound to pick up certain expenses on their behalf, and these may need to be reported to HMRC and may be subject to additional tax and National Insurance, depending on what the expense relates to.
To count as homeworking for HMRC purposes, the following conditions need to be met:
- There needs to be an arrangement about the details of the homeworking between employer and employee
- The employee must work at home regularly under the terms of this arrangement, even if the days on which the homeworking takes place differ from week to week.
It doesn’t need to apply to all employees and doesn’t need to be in writing, though it often will be. If the employee only works from home very infrequently or without the agreement of the employer, the exemptions mentioned later in our guide don’t apply.
As far as HMRC is concerned, the following expenses are legitimate homeworking expenses:
- Equipment, services or supplies which are required by your employees to enable them to do their job at home – such as computer equipment, broadband, office furniture or stationery supplies.
- Additional household expenses – such as additional energy costs resulting from the extra time they spend at home.
Are there any exemptions?
As with so many expenses situations, what you need to report to HMRC all depends on the circumstances. If any of these homeworking expenses form part of a salary sacrifice agreement, they need to be reported to HMRC whatever the circumstances.
With regard to the equipment, services or supplies which are required to allow your employees to work from home, you don’t need to report or pay anything that is only used for business purposes. This also includes personal use as long as it is deemed to be insignificant.
If you cover any of your employees’ additional household expenses, you don’t have to report or pay anything as long as all of the following conditions apply:
- They need to work from home – either because they live too far away from your workplace to be reasonably expected to travel there every day, or because the equipment they need to do the job isn’t available at your workplace
- The amount you give them isn’t more than their actual additional household expenses
- The amount you give them isn’t more than the current weekly limits, as set by HMRC.
The weekly tax limits are as follows:
|Tax year||Weekly limit|
|2007/8 and earlier||£2|
|2008/9 to 2011/12||£3|
|2012/13 onwards||£4 (or £18 per month for those employees paid monthly)|
How do you report these expenses to HMRC and pay?
You only need to report and pay on any expenses which aren’t classed as exempt, as explained above. If they aren’t exempt, you need to report them to HMRC and there may be additional PAYE and National Insurance to pay as a result.
For equipment, services and supplies that you provide for both business and personal use, you need to report this on your P11D form and pay Class 1A National Insurance on the value of the benefit you provide.
With regard to additional household expenses that you cover above the weekly (or monthly) limit, you will need to be able to prove to HMRC that the expenses you are covering are a true reflection of their actual additional expenses and that you aren’t paying more than you should. If the payments you make are more than your employee’s additional household expenses, HMRC will class these payments as earnings so you will need to work out the excess that you are paying them and then add them to your employee’s other earnings. Then you will deduct Class 1 National Insurance and PAYE tax through payroll, just as you would for their other earnings.
How do you work out the value?
With regard to any equipment, services or supplies that you pay for, the value is pretty simple to work out – it is just the cost to you. It gets more difficult when you are working out the value of additional household expenses. If your employee doesn’t supply you with any evidence or proof of their additional expenses, you just minus the weekly limit from the cost to you and use that value to report to HMRC. However, if your employee does provide you with supporting evidence to show that their additional household expenses are above the weekly (or monthly) limit, you report any amount you pay which is above these additional evidence-supported expenses.
If you pick up homeworking costs as part of a salary sacrifice arrangement and the amount of salary given up is greater than the cost of the additional expenses, you need to report the salary amount to HMRC instead. This only applies to salary sacrifice arrangements made after 6th April 2017.
How can DSR Tax Claims help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.