29th April 2020
As an employer, you may be thinking whether you can help to cover your employee’s additional household expenses (electricity, gas, internet access and water costs etc.) whilst they work from home during the lockdown.
Thankfully, the answer is yes you can.
HMRC allow an employer to pay an employee for homeworking expenses. There are two ways to calculate the amount to pay; one is straightforward, the other not so.
Option 1 – agreed HMRC allowance
HMRC have for many years now put in place an allowance for employee’s working from home to cover household costs.
Up to 5th April 2020 the weekly allowed amount was £4 per week (£18 per month for employees paid monthly).
Since 6th April 2020 the amounts have increased to £6 per week (£26 per month for employees paid monthly).
Now these amounts are not huge, but will no doubt help your employees with the extra costs that they are incurring.
If you do decide to pay the above allowances to your employee’s, the payment is an Exempt Benefit and no PAYE or National Insurance is due on the payment.
Option 2 – pay above the approved allowance
You can cover costs over and above the approved HMRC allowances above, but you will need to provide evidence to support the payment. This can be quite a time-consuming exercise and you will need to show the household costs prior to homeworking and the increase caused by homeworking.
Paying over and above the approved HMRC allowances is allowed as long as the payment is supported by evidence and is no more than the employee’s actual costs.
If the payment made to the employee is over the HMRC allowances and not supported by evidence, then the excess payment is liable to PAYE and National Insurance as it is treated as extra earnings.
Note for Employer’s
You may decide not to pay an allowance to your employee’s to cover the additional household costs being incurred.
If this is the case, then please advise your employee’s that they can claim tax relief from HMRC for the weeks worked from home using the allowances in option 1 above.
They can complete an online form for each tax year affected. All information can be found here – https://www.gov.uk/tax-relief-for-employees/working-at-home