Working From Home? Find Out How to Claim Tax Relief on Your Expenses
If you’ve been working from home since the pandemic started, you’re probably well established in your new routine; your commute consists of walking down the stairs to the laptop, you’ve replaced barista coffee with instant and your tastebuds have (almost) accepted it, you have a dedicated Slack channel for work gossip and pyjama bottoms are a regular feature in your work attire.
While the perks of working from home are becoming increasingly clear - higher bank balances, reduced monthly outgoings (bye travel fares!) and no more overpriced sandwiches at lunchtime - you may have incurred other expenses along the way.
Have you bought a new chair for your home office? Perhaps your electricity or water bills have increased since working from home?
Some of these expenses could be eligible for tax relief. There are a few tricky rules around what you can and cannot claim tax relief for - so keep reading and all will be revealed.
What can you claim for?
As long as you are working from home on a regular basis, and it’s an agreed setup with your employer, you should be able to claim tax relief.
You can claim for additional gas or electricity costs, additional insurance costs, or business telephone calls or internet charges.
You cannot claim for any home-related costs that haven’t increased since you’ve been working from home, or that are used for both private and business use, such as rent or mortgage payments, council tax payments and broadband.How much can you claim?
You have two options.
You can claim for the additional costs you incurred, such as electricity - although calculating exact figures can be a time-consuming task.
Alternatively, your employer can pay you £6 per week (£26 per month) to cover your additional costs. But in this current climate, you may not feel it is appropriate to ask for additional pay, so you can also claim tax relief directly from HMRC.
The good news is HMRC say claims for £6/week will not need to be justified, meaning you won’t need to prove these costs or keep your bills as evidence.
If you’re a basic 20% rate taxpayer, you could gain £1.20/week (£62 per year) and if you’re a higher 40% rate taxpayer, you could gain £2.40/week (£124 per year).
You must have paid tax on the earnings from your job, and you’ll get tax relief based on what you’ve spent and the rate of tax you pay.
Are these new rules?
These rules have been around for a long time, although the weekly amount of £6 increased from £4 per week in April this year.
I started working from home during the Covid-19 pandemic, can I claim?
Yes. If you only started working from home since the Covid-19 advice in March, you will still be able to claim. You are eligible to receive the allowance tax-free from the date your employer instructed you to work from home.
If you work from home 3 days a week and those 3 days vary each week, this is still considered as 'working from home on a regular basis' by HMRC, and you are eligible to claim tax relief.
But, if you are choosing to work from home and have not been asked to do so by your employer, you cannot claim tax relief.
When should I make a claim?
Rather than creating multiple requests to HMRC during one of their busiest times, if you know you will be back to work in an office or business premises in the future, you can wait until the end of your working from home period to claim. I bought new office equipment to work from home, can I claim tax relief?
This is where it gets slightly more complicated.
New legislation came into effect on 11 June 2020, introducing a temporary measure for 2020/21.
This temporary measure means that your employer can reimburse you for the cost of the equipment, tax-free and NI-free.
As long as the equipment, such as a new desk or computer, has been purchased for the sole purpose of enabling you to work from home as a result of coronavirus, you can be reimbursed by your employer tax- and NI-free.
However, if your employer is unable or unwilling to reimburse equipment costs, it is much more difficult.
First of all, you'll need to find out if you meet the conditions to claim tax relief directly with HMRC, through capital allowances. Being honest, under current HMRC guidance, this is likely to be a struggle.
In particular, desks and chairs are difficult to claim relief for. While desks, chairs and footrests put you in a more comfortable position to work, they are not used for your actual role or responsibilities directly.
My employer won’t pay me an additional £6 per week. How do I claim with HMRC?
You can claim through HMRC online or by phone. It's recommended that you double-check what you can claim for, before applying, using HMRC’s online survey. Check if you can claim tax relief here.
The survey will take you through a round of questions detailed below and will determine whether you can claim tax relief.
You can only claim for the current tax year (6 April 2020 to 5 April 2021) and the 4 previous tax years.
You can only claim expenses if you paid tax.
If you complete a Self Assessment return, you should claim there.
If you are claiming more than £2,500 in expenses in the tax year, you will need to complete a Self Assessment return to claim them.
If your employer has reimbursed you for your work-related expenses, you cannot claim tax relief for these expenses.
Select the expenses you wish to claim. As well as working from home costs, you can also claim travel and overnight expenses and mileage costs - as long as your employer has not already paid you back for them.
If you are claiming for more than 5 jobs, you will need to apply by post.
To submit your claim, fill out a P87 form online or log in to your Government Gateway account.
Tax-deductible expenses for you
So we’ve covered tax relief when you are working from home.
What about other tax-deductible expenses?
For certain job-related expenses, you can claim tax relief for the amounts you have paid out - meaning the tax you have paid on an item is essentially removed.
This applies to expenses that you have paid for yourself (without any reimbursement from your employer) and where your employer has reimbursed the expenses but you have been taxed on the reimbursement.
As a general rule, you’re only allowed to claim costs for items or services you’ve bought ‘wholly and exclusively’ in relation to your job, and you must keep proof of what you have spent, such as relevant receipts or invoices.
Usually, people claim tax relief on expenses made within that tax year - but don’t worry if you forget, you have 4 years to make a claim - and, of course, you must be a taxpayer.
Expenses on your business trips
Expenses accumulated on business journeys, including mileage, meals and overnight accommodation (known as subsistence), parking fees, and toll road charges are normally free from tax.
So, as long as it meets all of the requirements, legitimate business expenses are not subject to tax or National Insurance costs.
Claiming mileage for business travel can be a confusing subject - there are rules around what qualifies as an eligible business trip, and different reimbursement rates depending on whether you use a company vehicle or your own car.
The amount that can be claimed depends on the type of vehicle and the distance travelled in the tax year.If you use your own vehicle, the tax-free approved mileage allowance for cars and vans is 45p per mile for the first 10,000 miles in the financial year and 25p per mile thereafter.
Motorbikes and bicycles are slightly different, as the rate remains the same for any distance travelled within the tax year: for motorbikes, it is 24p per mile and for bicycles, it is 20p per mile.
If you bring a co-worker along on a business journey, in your own car or van and they are also going for business reasons, you can claim an extra £0.05 per mile tax-free.
If you use a company vehicle, then Advisory Fuel Rates apply. See the blog below to find out more.
Membership fee expenses
Membership fees and subscriptions to professional bodies are sometimes necessary to do your job.
The good news is if HMRC has approved the professional body you pay your membership fee or subscription to, you may be able to claim tax back on your payments - you can find the list approved by HMRC here.
You can’t claim back fees or subscriptions on lifetime membership subscriptions, or fees and subscriptions you haven’t paid for yourself – for example, if your employer has paid for them.
Automating your business expenses
Have your business expenses got you in a bit of a muddle? Are reimbursements driving you round the bend?
Reimbursing your employees often involves a lengthy process with forms or spreadsheets, bank statements and paper receipts. Plus your employees are out-of-pocket for their expenses while waiting to be repaid.
Two of the most common reasons for expenses not being reimbursed are losing the receipt or missing the deadline. Automating your expense process solves both these problems easily.
Expend's expense management software enables you to oversee spending across your entire business, manage expenses on-the-go and removes the need for a long reimbursement process.
By providing your teams with Expend’s Mastercards, you have peace of mind that your teams can instantly access business funds while you retain full control of spending.
You can set spending limits on cards, restrict ATM withdrawals or online transactions, and even block spending in certain sectors, such as pubs or bars - leaving no room for misuse.
Each smart Mastercard enables you to set spending limits per employee on a daily, weekly or monthly basis and block spending at certain retailer types, such as pubs and bars.
Don't want to use Expend cards?
Would you rather use your corporate cards, or keep your existing reimbursement process?
Through the Expend app, your employees can easily submit any expense from any payment type while on-the-go; attaching receipts, notes and assigning expenses to a client or job number within seconds, enabling them (and you) to keep on top of their expenses.
> Don't just take our word for it. Read our latest customer reviews here!
Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.
Written by Kayley Hunter
As head of partnerships, Kayley can be found working closely with accountants and leading accounting apps to help solve the expenses and spending problems faced by businesses through lasting partnerships.