With many employees being required to work from home – at least temporarily – they will want to know what expenses they can claim against tax. The answer, sadly, is not all that much in most cases.

Expenses can only be claimed if an employee has to work from home – if they simply choose to do so, no expenses can be claimed. This is because expenses must be incurred “wholly, exclusively and necessarily” in the performance of their duties – so the question is whether they need to incur the costs.

Given that current government advice is that employees should work from home wherever possible, this test is likely to be met – at least for the time being. So, what can be claimed?

• An employer can pay an employee a tax-free allowance of £26 per month, (or £6 per week) to meet the increased costs of home working. This is a round sum allowance, and receipts are not needed – but it is at the discretion of the employer.
• If the employer does not pay the allowance, the employee can still claim this, but the benefit will only be £26 x 20% ie. £6.20 per month.
• Employees can claim other expenses, but only where they are specifically needed for business purposes. So, the cost of extra business calls can be claimed, but the cost of a broadband package cannot be (even if the employer asks you to use the broadband for work). Similarly, phone line rental cannot be claimed, unless it is a separate line used only for business purposes (for example, if a high-quality ISDN line is needed). Claims of up to £2.5k can be made without needing to specify the full details, but receipts should be kept for at least four years in case HMRC asks questions later.
• An employer can provide an employee with a mobile phone, without any tax cost for the employee, provided the phone contract is in the employer’s name. This is a specific exception to the general rule of ‘necessary’ expenses, but it only works if the employer provides the phone. If the employee has the phone contract, only business calls (and not the line rental) can be claimed.
• The government has introduced a temporary tax exemption for the 2020/21 tax year, where an employer reimburses expenses for an employee that has purchased items to support home working – under the normal rules, the reimbursed expense would be taxable. 

For a basic rate taxpayer, any expenses claimed will reduce their tax bill by 20% of the amount of the expense – so an employee who claims costs of £200 will only get a reduction in their tax bill of £40 – HMRC only gives tax relief, not reimbursement of the full cost.

Nimesh Shah is a partner at Blick Rothenberg.

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