HMRC have launched a new portal this month, to make it easier for employees to claim tax relief on the costs of working from home.
Why have they created this new free tool?
There are millions of people working from home because of the COVID-19 restrictions. As we prepare for a possible rise in the number of local lockdowns, over the next few months, even more taxpayers will be told by their employer that they have to work from home.
As reported in the Guardian, Karl Khan, HMRC’s interim director general of customer services, says: “We want everyone to get the money that they are entitled to, so we’ve made the online service as easy to use as we can – it takes just a few minutes to make a claim.”
Taking these claims to a user friendly online tool should make this easier for taxpayers, if that’s all you’re claiming for. There is no need for receipts, or to work out proportional amounts. It also seems easier for HMRC to process. With less scope for mistakes, they’ll need less time to authorise claims made in this way.
Can I claim a working from home tax rebate?
The key factor is that you have been told by our employer that you have to work from home, rather than it being a personal choice.
If this is you, then you need to work out how much you actually spend on working from home costs. There are two levels of working from home tax relief available.
Easy, no receipts necessary option
One is a simpler system, using the new tool, which works on an average cost of £6.00 spent per week. This is also known as the flat rate. You can claim tax relief on this £6.00 per week amount, at the highest rate you pay tax.
For Basic Rate taxpayers that earn between £12,500 and £50,000 per year, that’s 20% – £1.20 per week. If you earn over £50,000 per annum, you’re income tax rate is 40%, so you can reclaim £2.40 per week.
If you work for the full year at home, Basic Rate taxpayers take £62.40 off their tax bill, or £124.80 if you’re in the Higher Rate tax band.
After you apply, HMRC will adjust your tax code for this tax year (2020-21) to reduce your tax bill by this amount. You don’t get a cheque for the cash, it’s taken off your tax bill, so you get a bit more in your wages.
I know I’ve spent a lot more than £6 per week…
If it’s cost you considerably more than £6 per week to work from home, then you do have an alternative. You can claim back expenses up to the value of £2,500. If you’re in self assessment, you fill in the relevant section of your tax return to do this. If not, you can use a Form P87 to make your tax rebate claim.
Expenses that count towards a working from home tax relief claim:
- Proportion of energy and water bills. For example, if you have a five room house and work from one room, you can claim tax relief on one fifth of your energy bills.
- Percentage of your phone used for work.
- Equipment or furniture that you use solely for work. For example, you suddenly had to buy a desk and chair during lockdown.
You cannot claim for costs that exist whether you work from home or not, like mortgage, rent or council tax.
Remember, this is not a claim for the total cost of your expenses, but the tax you paid on them. Again, paid at the same rate as you are charged income tax.
For example, if you had to shell out £600 on a new laptop, you’ll get £120 back in your wages if you’re a Basic Rate taxpayer (20% 0f £600). And £240, if you’re in the Higher Rate bracket (40% of £600.)
For most taxpayers, it’s simpler and quicker just to go with the flat rate option and you can use the new online tool. Unless you have much higher costs, it may not be worth the hassle of making sure you’ve got all the receipts you need to support your higher claim.