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12 Jan 2021

Government makes £125 working from home tax relief easier to access: can you claim?

The HMRC tax relief will help to cover extra costs such as work equipment and utility bills

The government has recently made it much easier for those working from home to claim tax relief worth up to £125 to help cover the extra costs of things such as stationery and some household bills.

Current coronavirus advice across all UK nations is for people to work from home where possible, with many employees seeing some outgoings increase as a result.

It's possible to make claims for both the 2020-21 and 2021-22 tax years, which could mean a rebate of up to £250.

Here, Which? explains how to claim the tax rebate, how to get further financial help to heat your home and how working from home could affect your home insurance.

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How do you claim working from home tax relief?

The government's microsite makes claiming tax relief pretty easy, but there are some eligibility criteria. To claim, you must:

  • Only be claiming expenses for working from home
  • Not pay tax by self-assessment
  • Not have had your expenses paid by your employer
  • Have started working from home due to the coronavirus pandemic
  • Have encountered higher costs since working from home.

The government's eligibility tool will check all of these facts. To proceed, you must have a Government Gateway user ID and password - but if you don't already have one it will guide you to the right place to create one.

For the next step, you simply state what date you started working from home. You'll receive a rebate for the full year even if you don't know when you'll be going back to the office and even if you've only had to work from home for one day.

If your claim is successful, your PAYE tax code will be changed, which means you'll be able to earn more before tax payments kick in. If you started working from home before 6 April 2020, this will take into account any tax relief owed for the 2019-20 tax year as well.

How much will you get?

Tax relief for the full tax year will be worth either £60 or £125, depending on the rate of income tax you pay.

You can claim tax relief on £6 a week; if you pay the 20% basic-rate income tax that will mean a gain of £1.20 a week (20% of £6) or £60 a year.

If you're a higher-rate taxpayer, the tax relief you receive will equate to a gain of £2.40 a week (40% of £6) or £125 a year.

If your employer chooses to give you the working from home allowance, this would be £6 a week tax-free.

What if the flat-rate tax rebate isn't enough?

If the £6-a-week tax rebate doesn't cover your extra costs, it's possible to claim for more - but you'll have to provide evidence of having higher bills and other outgoings as a result of having to work from home.

If you're employed

Employed workers can only claim tax relief for things that are solely used for work purposes.

This includes things such as extra costs for gas and electricity used to power your work area or the costs of business calls added to your phone bill.

When it comes to things such as rent or broadband, you can't claim for these - nor can anything else that's used for both private and business use.

If you're self-employed

Self-employed people working from home can claim for more costs than employed workers. This includes a proportion of the costs for lighting, heating, cleaning, insurance, mortgage interest, council tax, water rates and general maintenance.

To work out this proportion, you'd need to calculate the amount of time you're using your home for work and, in the case of lighting and heating, how much of your home is being used.

If you work from home for more than 25 hours a week, you may be able to use HMRC's simplified expenses system.

You can only claim via a self-assessment tax return, which as a self-employed worker you'll have to submit each year anyway.

As self-employed workers are taxed on their profits, expenses incurred from working from home can be deducted, therefore reducing the amount of tax you'll pay.

Tax payment help for self-employed workers and businesses

HMRC's dedicated tax helpline launched in March 2020, specifically for businesses and self-employed workers with financial issues caused by the coronavirus pandemic.

You can call on 0800 024 1222 - lines are open from 8am to 4pm Monday to Friday.

There's also a webchat service for those who are struggling to pay their taxes.

Alternatively, you may be able to find help online regarding applications for the Coronavirus Job Retention Scheme (CJRS), the Self-employed Income Support Scheme (SEISS) and HMRC's Time to Pay scheme.

Can you get help to heat your home over winter?

Working from home all day during the colder months can mean using more energy than usual, which in turn will mean higher bills.

If you need extra help, there are a number of government grants you may be eligible for. The five main ones are:

  • Affordable Warmth and Nest These schemes are for those who receive certain benefits and either privately rent or own their own property. Payments can help with the cost of loft and cavity wall insulation or a new boiler.
  • Cold Weather Payment These payments are made to households that receive certain benefits and help pay for extra heating costs during very cold weather.
  • Winter Fuel PaymentThis is automatically paid to those who receive the state pension - it's an annual tax-free lump sum to help pay for gas or electricity during the winter, but what you get depends on how old you are.
  • Fuel Direct For those who receive certain benefits and are struggling to keep up with energy payments, Fuel Direct payments can be taken directly from those benefits payments in order to pay off any outstanding bills.
  • Green Homes Grant Vouchers for up to £5,000 are available for selected home improvements, including insulation.

Find out more in our full guides to Cold Weather Payment, Winter Fuel Payment and Fuel Direct and the Green Homes Grant.

Can working from home affect your home insurance?

Home insurance cover for office-based employees who have been forced to work from home due to coronavirus won't be affected, according to the Association of British Insurers (ABI).

This means it's not necessary to contact your insurer to extend your cover or update your documents to say you're working from home.

Before the pandemic, someone setting up an office in their home may have needed to tell their home insurer about the change and might have had to pay for extended cover for additional items.