With Boris and his happy band of followers urging as many of us as possible to work from home to; I’ve had an increasing level of enquiries recently, as to what exactly you can claim for if you work from home.
There is clearly much confusion about what expenses you can claim tax relief on. If you are claiming tax back from HMRC, it is important to make sure that you get your claim right.
There is no ‘one size fits all’ rule, but as you will see most expenses, subject to certain limits, that are reimbursed by your employer, qualify for tax relief.
So, let’s say your employer has asked you to work from home during the coronavirus pandemic. As a result, your employer might have agreed to cover the cost of some things, or it might be that your employer isn’t paying you anything extra, yet you are incurring some extra costs. This article covers the latter – that is, it assumes that you are incurring extra costs that are not being reimbursed by your employer.
P87 What are the rules?
It is important to note that tax relief for employees’ work-related expenses can only be claimed if you are ‘required’ to work from home. Normally this means that your contract states that home is your workplace or if you must work from home because your employer does not have available office space.
Recently the government list of rules have been relaxed to help support business, and HMRC have confirmed they will accept the coronavirus situation as one where you are ‘required’ to work from home. This effectively means that from the date of the first lockdown, HMRC will accept claims for tax relief on the basis you are a home worker for the duration of the pandemic, even if it is not in your contract.
Is P87 relief allowed on increased household bills by working from home?
So, you are incurring additional costs by working at home, for example, gas, electricity and internet costs. HMRC allow a tax and NIC-free flat rate reimbursement of £6 a week if this is easier than having to work out actual amounts.
Alternatively, you can base your claim on a proportion of your actual household running costs, but you must keep records of them all and the extent to which you use your home for work.
Example: Jack would normally be at the office from 08:30 to 17:30 Monday to Friday, 45 hours in total, and would be at home for an average 12 hours a day during the week and 35 hours at the weekend or 107 hrs. This means that 30% of the running costs of his home, excluding fixed costs such as his mortgage/rent are incurred because he is now working from home.
According to the Office of National Statistics the average household spends a total of around £2,500 per annum on heating, electricity, and the internet. Thus, the tax-free payment would be 30% of £2,500 or £750; which is considerably more than the flat rate of £6pw or £312pa
What about the cost of landline and mobile calls?
If you are using your home phone or personal mobile to make calls for work, then the unit cost of calls can be claimed, but only to the extent they are not covered by free minutes you may be given with your package.
Also, if working from home requires you to have a second line or say, an additional internet data contract, these are allowable.
These expenses are also additional to any flat rate or percentage claim with regard to household costs.
Can I get P87 tax relief on office equipment?
Many of the individuals who’ve contacted me have purchased items such as a desk, chair, zoom camera, an extra monitor etcetera, to enable them to work from home. Unfortunately, HMRC will not allow tax relief for these items via an expense claim.
However, HMRC have just announced an exemption for home office expenses when they are reimbursed by an employer. So, before you buy that lovely new desk, ask your employer if they will reimburse you first.
P87 Is there anything else I can claim for?
Yes, there is and below I have listed a number of areas where a claim is possible:
- The cleaning, repairing or replacing of protective clothing, uniforms or other clothing necessary for your job is eligible for tax relief at a flat rate of £60pa.
- Subscriptions and membership fees to most professional bodies are eligible for tax relief, assuming the membership is relevant to your job or profession.
- Any reasonable expenses encountered because of business trips, such as parking, tolls, food/drink, overnight accommodation etcetera.
- If your employer pays you less than the HMRC rate of 45p per mile (up to 10,000) or 25ppm (any miles above 10,000) for using your car for work, you can claim the difference.
P87 How much tax relief will I get and when?
HMRC will give you relief from income tax on any allowable expenses that have not been repaid to you by your employer. A basic rate taxpayer would get 20% of that back in income tax relief and a higher rate payer 40%. Unfortunately, the relief is not extended to any National Insurance Contributions claims.
The normal method of claim is by completing HMRC form P87, subject to the following rules:
- You are not normally required to submit an annual tax return;
- You are an employee and you have spent your own money on allowable employment expenses (which are not then reimbursed by your employer);
- Your allowable employment expenses are less than £2,500 for the tax year.
You have four years from the end of the tax year to make a claim; so, for 2020/21, you must make a claim by 5th April 2025. Also, please note that If your claim is for a sum in excess of £2,500, you must contact HMRC to be issued with a Self-Assessment tax return.
P87 When will I get my refund?
If you are claiming for expenses using form P87, any that have been incurred before the tax year end of 5th April 2020, you should get a tax refund from HMRC by cheque once the claim has been processed. For expenses you are incurring now, you must wait until the end of the year (5 April 2021) to get a cheque, or alternatively, you can ask HMRC to adjust your 2020/21 PAYE tax code to give you the tax relief now.
As ever, if you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.