Is working from home tax relief set to be scrapped?

If you’re planning to claim working from home tax relief, you might want to do so soon, as multiple news reports suggest that it could soon be scrapped.

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.

Portrait of worried woman standing beside window

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.

Does your job require you to work from home, either full-time or part-time? You may be entitled to working from home tax relief that allows you to claim up to £125 per year even if you’ve only worked from home for one day.

However, if you haven’t yet claimed yours from HMRC, you might want to act quickly. That’s because the Treasury is rumoured to be planning to scrap the tax relief. So, how do you apply for this relief? And how long do you have before it’s potentially axed? Read on to find out.

[top_pitch]

What is working from home tax relief?

Basically, it’s tax relief that is meant to help cover the extra household utility costs associated with working from home.

As of 6 April 2020, you can claim tax relief on £6 a week (the rate was £4 a week in previous years).

The actual amount you can get will depend on the rate at which you pay tax. If you are a basic rate taxpayer, the relief is worth 20% of £6, which means that you can get £1.20 a week or £62.40 a year. If you are a higher rate taxpayer, the relief is worth 40% of £6, or £2.40 a week. This comes to £124.80 a year.

You may also be able to receive relief for the exact amount of additional costs you have incurred above the weekly amount. However, to do this, you need to provide evidence such as bills, receipts or contracts.

Is working from home tax relief to be scrapped?

According to multiple news reports, HMRC is currently reviewing the special tax relief with a view to potentially scrapping it.

The cost of the scheme to the Treasury is understood to have risen significantly in the last two years (from £2 million per year to nearly £500 million) because of the work from home revolution caused by the pandemic.

Data from the Office for National Statistics (ONS) shows that one in four adults in the UK, or 13.4 million, were working from home in the week up to 16 January 2022. HMRC, adds that about 4.9 million people have successfully claimed the tax relief since March 2020.

Now, as reported by The Telegraph, HMRC is compiling a report for the chancellor that is expected to result in changes to who can claim tax relief and how much they can claim. The overall aim is to cut costs to the Treasury.

An unnamed source told The Telegraph that “This is a tax relief that existed before Covid, and it was there for legitimate reasons, but the take-up is now much higher, so it needs to be looked at.”

Can you make a claim now?

Yes, you can.

However, it would be prudent to act quickly. We don’t know how long applications will remain open. You can apply through a claim tool on the gov.uk website.

Claims can be backdated for up to four years. You will receive a lump sum if you are successful. For example, if you worked from home in the last two years because of Covid-19 and have never filed a claim, you could be entitled to a two-year payout of £250.

It’s worth noting that you can’t file a claim if your employer already covers your work from home expenses.

You also can’t claim the relief through the gov.uk website if you are in self-employment. However, you can claim it through ‘work expenses’ on your Self-Assessment tax return.

[middle_pitch]

Could you save money when working from home?

The potential axing of the working from home tax relief comes at a time when families are already facing great financial pressures from the rising cost of living.

However, you can lessen any impact of the relief cut on your finances by looking for ways to cut costs and save money when working from home.

For handy, practical tips and ideas on how to do this, check out our articles on how to save money working from home and budgeting tips for working from home.

The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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 »