The home working allowance is nothing new. In fact, it has been a staple expense that our accountants discuss with their clients when conducting their tax efficiency reviews for a fair few years now. However, because of the pandemic, HMRC has changed the rules on how the allowance works which could see you as much as £140.40 better off per year. You have always been able to claim tax relief for working from home. This was either as an evidenced cost for to the extra utilities being used whilst working from home (extra electricity, extra gas, increased broadband costs etc.) or as a Flat Rate Expense (FRE) of £6 per week (previously £4 per week up to tax year ending 2019/2020). The big difference now is that you can claim the WHOLE year’s worth of allowance, even if you have only spent one day during the whole year working from home.
So why the change?
Quite simply because it will actually end up saving HMRC money. When HMRC receives a home working claim, this needs to be processed by their back-office staff for it to be administered, and when applicable, to make a refund payment. Because of the pandemic, millions more of us were/are required to work from home and HMRC would have had to employ hundreds of additional back-office and administrative staff to cope with this extra workload. To avoid this, HMRC has .a) changed the rules on how to make a claim and .b) set up an online platform to allow you to make your claim.
What are the new rules?
Prior to the change, there were a couple of ways that you could have calculated your claim. The two ways of doing this were:
- Claim for the increased cost caused by your home working. These would need to be evidenced by receipts and as you can imagine, this is not always going to be easy to do. Or,
- Claim for the Flat Rate Expense allowance. This is a much simpler way of claiming as you do not need to provide evidence of increased costs and could claim £6 per week for each week that you worked from home.
So what’s the difference now?
The key difference for claiming the home working allowance for the 20/21 and 21/22 tax years is that you only need to have been required to work from home for one day of the year. That’s right, for only one day. The key thing here is that you must have been required to work from home and not just wanted to.
How much could I be due back?
This one all depends on how much you earn and ultimately what tax bracket you are in. Below we have done some calculations for you to show you how much this could be worth to you.
Basic rate taxpayer (20%)
if you are a basic rate taxpayer (earning less than £50,000 a year)
then £6 per week tax relief works out to be £1.20 per week as a tax refund. The amount that you will get back for 20/21 with £62.40.
Higher rate taxpayer (40%)
For higher rate taxpayers (earnings between £50,001 and £150,000) then the £6 per week tax relief works out to be £2.40 per week as a tax refund. This works out to be £124.80 that will be refunded
Additional rate taxpayers (45%)
When earning a salary of over £150,001 you pay tax at 45%. The home working allowance works out to be £2.70 per week in tax relief which would result in a refund of £140.40 for the year
If you are required to work from home at all during this tax year (21/22) then you can double the amount calculated as your refund for the year. Remember though, it is not automatically assigned so you will need to submit a claim for both the 20/21 and the 20/22 tax years.
How do I claim?
For employees who are only PAYE it is super simple to do. All that you need to do is follow the link to HMRC’s working–from-home microservice and click through the steps. If you struggle with this then the other option is to send in a P87 form by post… although we have tested both and the postal version is way more complicated so we strongly recommend the microservice.
What if I am self-employed or submit a tax return?
For the self-employed amongst us, or for those who submit a tax return you will need to claim this on your tax returns. If you have tax to pay then the home working allowance will reduce this liability, if not, then you will still be entitled to the refund. Another benefit if you have a tax bill of over £1,000, this will also reduce your Payment On Accounts needed for the following years’ liability.
When can I not claim?
When you have not worked any days from home
Now this one should be fairly obvious, however, because of the changes HMRC has had to make with claiming this allowance it is wide open to fraud. HMRC will be able to figure out if you make a fraudulent claim and anyone making such a claim will almost certainly be made an example of. The HMRC’s processes are pretty strict so if they noticed anyone making a fraudulent claim, they would come down on you like a tonne of bricks. For example, a health care worker that was claiming a Mileage Tax Refund whilst also then trying to claim the home working allowance then they may want to look into that one.
Please do not let the last paragraph put you off claiming if you are also claiming for other tax reliefs, if you have been required to work any one day from home then you are perfectly legally allowed to make the claim.
If you have opted to work from home
Remember earlier when we said that you have to be required to work from home? If you have decided that you wanted to work from home and were not required to do so by your employer, then sadly you can not claim the full year through the microservice.
Your employer is already reimbursing you
As with any tax relief, if you are already being reimbursed by your employer then you cannot also claim the tax relief back. It is probably a good point to note that your employer in no way shape or form has to reimburse you and there are probably few her are. If you are unsure whether you are being reimbursed for this then always ask before making your claim… it will only come back and bite your on the bum further down the line.
Can this be backdated?
Yes, for 4 years, however, it is a different process for the 17/18, 18/19, and 19/20 tax years. Remember, the full year’s allowance is only available when you have worked at least 1 day from home for the 20/21 and 21/22 tax years. For backdated claims, you may want to speak to one of our tax accountants who will talk you through the process.
That was a lot of information to take in so for the more visual learners amongst us here is a clip from Martin Lewis’s Money Show which will hopefully help answer any unanswered questions.