What is working from home tax relief?

The number of people claiming working from home tax relief has grown significantly due to Covid-19. But how do you claim it? We take a look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Working from home due to social distancing

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

You may have heard about working from home tax relief. But what is it? Are you eligible? And if so, how do you claim for it? Here’s what you need to know.

[top_pitch]

Working from home tax relief: what is it?

If your job requires you to work from home, HMRC allows you to claim tax relief for extra expenses you have incurred, such as higher energy bills. 

Working from home tax relief is not a new scheme. The pandemic has forced many people to work from home, and as a result, millions can now claim it.

You don’t have to have been told by your employer to work from home to be eligible. If you’re told to self-isolate by NHS Test and Trace, or the NHS app pings you a notice to isolate, then these are perfectly valid reasons to work from home.

How much tax relief can I claim?

To speed up the process of dealing with many thousands of claims over the past two years, HMRC says that anyone who has been required to work from home for at least one day can claim £6 a week for the whole tax year, as long as you have incurred extra costs (though you won’t need to show evidence). This is true for the 2020/21 and 2021/22 tax years.

If you feel your extra costs were greater than £6 per week, you’ll have to provide proof. You’ll also have to provide receipts if you wish to claim tax relief on any equipment you’ve purchased for home working, such as laptops or chairs. For more on this point, see our article on claiming tax relief on coronavirus working from home expenses

How can I claim working from home tax relief?

If you’re an employee, you can get working from home tax relief in two ways. 

1. Via the gov.uk website

Due to Covid-19, HMRC launched a special microsite to deal with the thousands of claims. To use the service, you must have (or sign-up for) a Government Gateway ID.

2. Via your employer

As an alternative to making a claim yourself, your employer may choose to pay you the tax relief instead. However, they are under no obligation to do so, so you may have to apply directly to HMRC.

Once you’ve made a claim, HMRC will amend your tax code accordingly.

Can the self-employed claim?

If you’re self-employed and have been required to work from home for at least one day, you can also claim for the whole 2020/21 and 2021/22 tax years. However you can’t do this using the gov.uk microsite. Instead, you must claim as part of your self-assessment tax return.

Like employees, you can claim for the past four tax years, though for 2018/2019 and 2019/20, you can only claim for days you were required to work from home, where you faced higher expenses and not for the whole tax year. 

If you work at home for more than 25 hours a week, you may be able to use HMRC’s simplified expenses system to calculate all tax relief you may be eligible for. 

[middle_pitch]

What is £6 worth after tax?

The £6 benefit is greater for those who pay the highest rates of income tax.

For example, if you pay the 20% basic rate of tax and claim £6 a week, the relief will be worth £1.20 per week, or £62.40 per year. Higher-rate taxpayers (40%) will be £2.40 a week better off, or £124.80 a year. Additional-rate taxpayers (45%) will benefit to the tune of £2.70 per week or £140.40 a year.

While £6 seems like an arbitrary figure, it’s likely that HMRC has settled on this figure due to the costs required to assess individual claims as a result of millions of people having to work from home due to Covid-19. This is also the likely reason behind HMRC’s generosity allowing anyone to claim for a whole tax year, regardless of the number of days actually worked from home.

Working from home tax relief: What else should I know?

1. It may be a bigger saving than you might think

While £6 a week may not seem like much, over the past two tax years, your entitlement could be worth up to £280. Plus, if you use HMRC’s microsite, making a claim shouldn’t take more than a few minutes.

2. Couples in the same household can both claim working from home tax relief

If you live with your partner in the same household, don’t think you can’t both make a claim, even if you share utilities. Working from home tax relief is an individual benefit.

3. Part-time workers can claim too

If you work part-time, you can claim the relief just like full-time workers.

4. If you claimed for the 2020/21 tax year, you must apply again

If you put in a claim for working from home tax relief for the 2020/21 tax year, you must make another claim if you want relief for the current tax year. 

If you didn’t claim on the last tax year, you can claim for both years (2020/21, 2021/22) this year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »