Many workplaces are currently closed and employees are working at home where possible to prevent the spread of COVID-19.
This comes with advantages, not least avoiding the daily commute, but may also create costs for the employee such as additional power and water used whilst working. The employer can help with those costs by paying employees a tax-free and NIC-free allowance of £6 per week (£4 for periods before 6 April 2020).
The employee does not have to provide evidence of the additional expenses to receive the flat rate allowance. However if the employer wishes to pay a higher rate, proof that the employee has incurred costs in excess of £6 per week must be retained.
Employees who are furloughed cannot receive the home-working allowance as they should not be working at all while on furlough.
HMRC have confirmed that during the COVID-19 pandemic employees who have not previously been home-based are eligible to receive the home-working allowance from the date their employer agreed they could work from home. When offices reopen those employees who regularly work at home as part of their normal duties, not just informally out of hours, should have a formal home-working arrangement in place with their employer in order to continue to receive the home-working allowance.
If the employer does not pay the home-working allowance the employee can claim the flat rate amount from HMRC directly, either on their tax return or using form P87 (online or by post). This is a recent change in practice by HMRC who previously would not permit employees to claim for home-working expenses without evidence that increased costs were incurred.
Where the employee needs additional office equipment to make home-working possible or bearable, the employer can provide such items with no tax charge as long as there is no significant private use. If the employee has purchased their own necessary home office equipment the employer can reimburse the cost of those items with no tax or NIC charges arising. This is another change in tax law, effective for payments made to employees from 16 March 2020 to 5 April 2021.