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23 Sep 2020

Working from home for another six months: what it means for your finances

Been told to work from home? Find out how to claim £6 a week and how it affects your home insurance, car insurance and energy bills

On 22 September, Prime Minister Boris Johnson announced that, in a bid to slow the second wave of the coronavirus, any workers who can work from home should do so - for another six months.

This comes after MPs had been encouraging workers to return to the office, as long as social distancing measures had been put in place. Now, only those who cannot work from home should continue to go to work.

From gas and electricity bills to business telephone calls, you may find that several household costs will rise as a result of working at home all day. And you may also end up shelling out for things like stationery and other equipment that's necessary to do your job.

Elsewhere, there are also savings to be made on your car insurance, monthly or annual season tickets and your energy bills as we move towards the colder months.

Here, Which? explains the adjustments you can make to your finances while you're working from home.

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Tax rebates while you're working from home

If your bills and other expenses increase as a result of working from home, employed and self-employed workers alike may be able to claim a tax rebate on what they've spent.

However, what you can claim for, and how you claim it, differs depending on your employment status.

If you're employed

If your employer asks you to work from home, you should be able to claim tax relief on some of the bills you have to pay in order to carry out your work.

However, you'll only be able to claim for things that are solely used for work purposes.

This includes things like 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 like rent or broadband, these can't be claimed for - nor can anything else that's used for both private and business use.

How to claim

You can either claim through PAYE, where your rebate will be paid via your tax code over the following tax year, or via a self-assessment tax return.

If you don't want to calculate the exact amount you spend and provide evidence you could opt for the £6 flat rate. More on this below.

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.

How to claim

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.

Claiming £6 a week

As it can be difficult to identify the things you use for solely business use, it's possible to claim a flat rate of £6 a week to cover the extra expenses. This is worth it for ease, but perhaps not worth it if you're certain you're having to spend more than £6 a week to work from home.

You can claim the £6 a week from your employer - if they agree, they'll pay you this tax-free as part of your pay. However, many employers may not be in a position to do this - in which case you can make a claim for the amount to be deducted from your taxable income.

HMRC says you won't need to provide proof of these expenses, but you will if you try to claim for more than £6 a week.

You can still claim the £6 if you're only required to work from home part-time.

To claim the £6 as tax relief, you can either add the expenses as part of a self-assessment tax return - but if you don't usually submit one, most people will be able to just fill out a P87 form, which can be done online, through the post or over the phone.

You'll need your employment details, PAYE reference and National Insurance number.

Tax payment help for self-employed and businesses

This is a particularly tough time for self-employed workers and freelancers who have lost work as a result of coronavirus.

HMRC has set up a dedicated new tax helpline to support businesses and self-employed people who are concerned about being able to make their tax payments due to the impact of coronavirus.

You can call this new helpline on 0800 015 9559. It's open Monday to Friday 8am to 8pm, and Saturday 8am to 4pm.

HMRC says you can discuss your specific circumstances, and may be able to set up an instalment arrangement, suspend debt collection proceedings and cancel penalties and interest in cases where administrative difficulties mean you can't contact or pay HMRC immediately.

Can you get help to heat your home over winter?

With many people looking at the prospect of working from home until at least March 2021, it stands to reason that many people are likely to spend much of the next six months having to heat their home much more than usual.

The added energy costs incurred as a result of working from home can be claimed in the ways outlined above, but some people may be able to claim extra help to keep their homes warm.

There are four main government grants:

  • 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 payment: this 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 who 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.

Find out more in our full guide to Cold Weather Payment, Winter Fuel Payment and Fuel Direct.

What's more, the Green Homes Grant is set to launch soon - this is a government grant of up to £5,000 which can be used for home improvements such as insulation. While this won't directly contribute to the cost of your energy bills, it will help reduce them over the long term as the heat will be kept indoors.

Does working from home affect your home insurance?

Before the coronavirus pandemic, someone setting up an office in their home may have needed to let their home insurance provider know about the change, and may have had to add additional cover for the new items.

However, in light of so many workers being forced to work from home, the Association of British Insurers (ABI) has confirmed that its home insurance members are offering enhanced help to home workers during the pandemic.

This means that your home insurance won't be affected by working from home; you don't need to contact your provider or update your policy.

Cut down on your car insurance costs

If you usually drive to work, and therefore aren't using your car nearly as much as usual, it may be worth contacting your insurer and asking to switch your policy details from 'commuter use' to 'social use'.

Doing this could temporarily reduce your car insurance payments, but you'll need to make sure you change it back once you return to the office.

If you're not using your car at all, you could declare it off the road - this would mean you can cancel your car insurance policy (although watch out for any early cancellation penalties) and also get a refund on any car tax you've prepaid for.

However, you'll only be able to declare the vehicle off-road if you have a private garage or driveway to leave it - it cannot be left on a public road. You'll also need to officially inform the DVLA with a Statutory Off Road Notification (SORN) - you can register for this online.

Get a refund on season tickets you're not using

If working from home means you're no longer using a monthly or annual season ticket for your commute, most public transport companies will let you cancel this and will refund you the remaining portion of your ticket.

You can then buy a new season ticket when you return to work.

You should check the terms and conditions on the operator's website, as some won't allow cancellation within a certain amount of time of the expiry date and may require you to go to the station you bought it from.

In general, though, season tickets from train, coach, tram and bus operators should let you cancel.

For more information on your UK transport rights, see our news story detailing what to do about train, ferry and coach tickets that you can no longer use.

Which? coronavirus advice

Experts from across Which? have been compiling the advice you need to stay safe, and to make sure you're not out of pocket.

This story was originally published on 19 March and has since been updated. The last update was on 23 September with details on the latest announcement encouraging people to work from home for the next six months, and updates on how this affects household bills and finances.