An employee working from home has asked for a financial contribution towards their winter heating bills because they will be higher this year. Are you obliged to contribute towards a homeworker’s household running costs? Lauren Herbert discusses this in detail.
Many businesses have closed their premises and the government has directed that employees should work from home wherever possible. One of the consequences of homeworking is increased utility bills, particularly during the winter months.
The increased costs can be a shock for homeworking employees. But what is the situation if an employee demands that you make a financial contribution towards their winter heating bills? The starting position is that you can refuse, you could also politely point out that they will likely be saving money on their commuting costs.
However, this approach is unlikely to foster good employee relations. So, what are your options? Where an employee works from home, the employer has always been able to pay them up to £4 p.w. tax free towards their utility costs but from 6 April 2020 this has increased to £6 p.w.
The difficulty here is that you can’t single out employees for this benefit and it must be offered to all of your staff equally.
If you have, say, 15 employees who are working from home and they are each paid £6 p.w. that will cost you £2,340 p.a. whilst it’s a tax-deductible expense, the reality is that this payment may not be viable for some small businesses.
Reducing the burden
HMRC has acknowledged this issue and introduced a scheme that lets most employees claim tax relief on the amount of £6 p.w. You could suggest to the employee that they submit an application via HMRC’s micro-portal for this relief. The employee doesn’t have to keep any receipts to prove their claim. HMRC will apply the allowance to their tax code automatically.
Under the rules, only those employees who are “required” to work from home can submit an application for this tax relief. If you optionally chose to work from home you cannot claim this relief.
Provided an employee has been required to work from home for at least one day since 6 April 2020, they can claim tax relief for the entire 2020/21 tax year. The tax relief is calculated based on the rate at which you pay tax. In real terms, this will be worth £1.20 p.w. or £2.40 p.w. depending on whether they are a basic or higher rate taxpayer. Whilst being less than the full tax-free benefit of £6 p.w., it is better than nothing.
If an employee submits a self-assessment tax return each year, e.g. because they have rental income, they can’t use HMRC’s micro-portal service to claim this tax relief, but they can still claim a whole year’s allowance on their self-assessment form.
Employers are under no obligation to make any contribution towards a homeworker’s utility bills, but you can pay them up to £6 p.w. tax free if you wish. Alternatively, where an employee has been required to work from home, they can apply for tax relief on this amount for 2020/21 and HMRC will automatically adjust their tax code accordingly.