Expenses employees can claim for working from home

General Rules

A company can provide its employees with home working equipment used for work (such as office furniture, stationery, workshop materials and computer/IT equipment). This will be exempt from tax provided that the following two conditions are met:

1. Any private use for the employee or a member of their household is insignificant (HMRC guidance here).
2. The sole purpose of their provision must be to enable the employee to conduct their duties of employment

There are some expenses that are specifically not exempt for tax purposes:

• motor vehicles, boats and aircraft;
• a benefit that involves the extension, conversion or alteration of the living accommodation or the construction, extension, alteration of a building or other structure on land adjacent to and enjoyed with such accommodation.

So, a loft conversion to create a home office, or the construction of a separate office in the employee's garden, would not be exempt from tax.

Household Expenses

When an employee works from home, they may incur additional household expenses as a result. There is a tax exemption available where 'reasonable additional household expenses' are reimbursed by the company under a homeworking arrangement. Ideally, this homeworking arrangement should be formalised in writing or as part of the employment contract, and should not include employees who simply take work home with them some evenings (see HMRC guidance here).   

Household expenses include items such as additional costs of heating and lighting the work area, increased water use, additional household insurance or additional internet costs. However, costs that do not vary whether the employee works at home or not, such as mortgage payments or rent, are not included.

In terms of home broadband, if the employee already has an internet connection in place (most will do), the company cannot reimburse the cost tax free. However, if the employee does not already have a broadband connection and needs one to work, the cost can be reimbursed tax-free (HMRC guidance here). 

There are separate rules covering mobile phones which are normally exempt where employer-provided.

Flat rate

If the allowance is claimed, There is no need to keep receipts for actual expenditure incurred.

• See Homeworking rates and allowances
• See employee guidance on claiming this relief.

Can my employees claim tax relief?

This situation would only arise if they incurred home working expenses that were not reimbursed by the company. In practice this is quite rare and HMRC do not like to provide tax relief, especially when an employee chooses to (rather than is made to) work from home. 

HMRC have an online tool here which employees can use to see if they qualify for tax relief. 

What are the rules for directors?

The rules for directors are the same as they are for employees, detailed above, however directors may choose to recharge costs to their company using the method described here. 

References

HMRC guidance: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32810