Homeworkers hit by axeing of tax allowance – Daily Business

Homeworkers face a new expense

About 300,000 people working from home in the UK will lose their annual home working allowance in the coming financial year following a change that has drawn little attention.

The removal of the tax relief on non-reimbursed homeworking expenses could come as a financial jolt to those running a small enterprise, says Azets’ head of employment tax, Clair Williams.

“This tax relief, in place for many years, covers an estimated 300,000 people who incur additional household expenses, such as heating, electricity and business phone calls, in their employment duties,” she said.

“Claimants currently receive tax relief on up to £6 a week, and receipts are not required by HMRC. Removal of this tax relief will mean basic rate taxpayers see a tax increase of £62, and, at the higher rate, £124.

“However, employers can still reimburse employees for these costs, if eligible, without deducting income tax and National Insurance contributions.”

Eligibility for homeworking expenses was widened in 2020 to 2021 and 2021 to 2022 to include employees who had to work at home because of the pandemic, rather than because of their specific employment duties.

Ms Williams said: “Citing concerns about non-compliance, which is shorthand for fake claims, the government is moving the cost responsibility to the private sector, where the business tax burden this year, at 32%, is already the highest in 28 years.

“It is also worth bearing in mind that local employers may come under pressure to change their policies on reimbursement to provide WFH staff with financial reassurance, and some staff don’t have workplaces to go to because their employer doesn’t actually have physical premises.

“Getting rid of the measure will, based on HMRC’s own calculations, save the Treasury £115 million over five years from introduction.”

The removal of the tax relief was announced in the Autumn Budget last year but received scant attention.

“With so many policy announcements made then, this one perhaps fell through the cracks of general awareness,” said Ms Williams.

“The estimated 300,000 people currently claiming for the tax relief can do so for tax year 2025-2026 and retrospectively for up to four previous tax years, but this will no longer be possible for the new tax year.”

Some employees may inadvertently find themselves falling into a higher income tax bracket due to the ongoing freeze in tax bands, known as fiscal drag, warned Ms Williams.

“Whilst the abolition of home working tax relief spells good news for the nation’s coffers, it could well mean administrative headaches for businesses and a financial hit to WFH staff.”

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