Employees working from home

by Tax Faculty Team on 27.02.2012 15:35

Employers can now reimburse amounts of up to £4 per week


From 6 April 2012, HMRC has increased the guideline rate which employers can use to reimburse employees for additional household expenses incurred because they have to work from home. For 2012/13 the guideline rate will be £4.00 (previously £3) per week.


It is perhaps worth reminding readers of the distinction between the tax relief exemption for employer payments under s 316A,  ITEPA 2003 and the law on deductions for employees’ unreimbursed household expenses where relief is given under s 336,  ITEPA 2003.


According to HMRC explanation on the Homeworking section of its website, an employer can reimburse an employee for additional household expenses – such as gas or electricity charges - incurred because they have to work from home because either:

  • the facilities they need for their work aren’t available at the workplace, or
  • their work requires them to live too far from their workplace for it to be reasonable for them to travel there on a daily basis

These exempt payments can be made to employees who work at home under a voluntary homeworking scheme. The HMRC view of the interpretation of ‘homeworking arrangements’ as defined by s 316A(3) according to its manual at EIM01472, is somewhat different and is rather closer to the wording of the statute. Here it instructs:


‘You can accept that there are homeworking arrangements where two tests are met.

  • There must be arrangements between the employer and the employee and
  • The employee must work at home regularly under those arrangements.’

This would appear to be a somewhat broader and more accurate definition.


Provided the reimbursement doesn’t exceed the employee’s additional household expenses, there are:

  • no reporting requirements
  • no tax or NICs to pay

For amounts above £4.00, the employer needs supporting evidence to show that the payment to the employee is no more than the additional household expenses they have incurred. Any excess counts as earnings liable to PAYE and NIC.


The fact that an exempt payment has been or could be made does not mean that the employee is entitled to relief for household expenses under s 336, ITEPA 2003 where the expenses must be incurred ‘wholly and exclusively’ ‘in the performance of’ the employee’s duties, see EIM31660. In practice this restricts the relief considerably to the 

  • additional unit costs of gas and electricity consumed while a room is being used for work.
  • metered cost of water used ‘in the performance of the duties’ (if any).
  • unit costs of business telephone calls (including ‘dial up’ internet access).

Where it is difficult for employees to calculate the exact amount of the allowable additional costs that they have incurred as a result of working at home, a deduction of £3 (exclusive of the cost of business telephone calls) for each week that they are required to work at home, is allowed without having to justify that figure. Employees who wish to deduct more than £3 per week are expected to keep records and to be able to show how their figure has been calculated.


We have not yet seen any announcement that this figure has been increased in line with the s 316A allowance.