Tax Relief for Employees Working from Home
Whilst 2020 has been a difficult year for everyone, it’s helped businesses and their employees to embrace remote working. Many staff have returned to their usual working environment but there are still a fair few who are working from home, especially now that the region is moving into Tier 2 and the cold weather is returning.
Aside from being a convenient option, working from home also comes with tax relief opportunities that everyone should know about.
Work from home allowance
Your employees can claim tax relief on £6 a week or £26 a month simply for working from home. For instance, if they’re on the 20% basic rate of tax, they’ll get £1.20 a week in tax relief (20% of £6). This may not sound like much but sometimes a little can go a long way, plus your staff will be grateful that you’re helping them to save money during an expensive time of year.
Tax relief on expenses
If you or your staff have purchased anything for a home office that’s required to get work done, such as furniture, hardware and stationery, these items are eligible for tax relief too. Top examples are new computers, laptops and other devices, desks, chairs, storage units, office supplies and professional subscriptions, such as cloud software and apps. Providing these items are used specifically for business purposes, HMRC considers them eligible.
Whilst self-employed workers can include these costs in their next self-assessment tax return, employees can claim tax relief by completing a P87 form.
How much can be claimed?
It’s important that your staff know that they can claim tax relief on certain expenses when working remotely. Even small purchases like stationery and printer paper can add up, so giving them the option to get a little reimbursement from the government will be appreciated. Providing you haven’t already increased their wages to compensate for these items, they can claim for tax relief on expenses that total less than £2,500 for the tax year.
How your staff are reimbursed relies on when these purchases were made. If they were within the current tax year (on or after 6th April 2020), HMRC will usually adjust their tax code. If they were in the previous tax year, they will most likely receive a cheque in the post – make sure to let them know that most banking apps allow cheques to be paid in digitally, saving a physical trip to a branch.
The P87 form
Filling in the P87 form is a straightforward process. Employees can fill it in digitally using the Government Gateway if they already have an account, or complete it onscreen, print out a copy and send it to HMRC in the post. It’s also important that they retain a copy for their own reference.
The P87 form requires basic contact information such as the individual’s date of birth and National Insurance number, as well as the company’s name and their job title. They also need to add the employer’s PAYE reference and their employee number, which they can find on their payslips.
Under the “Other expenses” section, they can include costs for the setting up and running of a home office. They then fill in the sections for total expenses and how they want to be paid, then sign a declaration before submitting the claim.
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