Working from home tax claim

If you do not receive compensation from your employer you can still claim tax relief for some expenses that result from home working. HMRC will usually allow you to claim tax relief if you use your own money for things that you must buy for your job and you only use these items for work. You must make a claim within 4 years of the end of the tax year that you spent the money.

For example, if you use your own uniforms, work clothing and tools for work. It is possible to claim for the cost of repairing or replacing small tools you need to do your job as an employee (for example, scissors or an electric drill), or cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots). A claim for valid purchases can be made against receipts or as a 'flat rate deduction'. However, you cannot make a claim for relief for the initial cost of buying small tools or work clothing.

You may also be able to claim tax relief for using your own vehicle, be it a car, van, motorcycle or bike. As a general rule, there is no tax relief for ordinary commuting to and from your work. The rules are different for temporary workplaces where the expense is usually allowable and if you use your own vehicle to do other business related mileage.

Note, that if you have agreed with your employer to work at home voluntarily, or you choose to work at home, you cannot claim tax relief on the bills you have to pay.

Kickstart scheme officially launched

The new £2 billion Kickstart scheme that was announced as part of the Summer Economic update by the Chancellor, Rishi Sunak was officially launched by the government on 2 September 2020. The scheme is intended to create hundreds of thousands of high-quality 6-month work placements aimed at those aged 16 to 24.

It is hoped the scheme will help young people into work and spur Britain’s economic revival. The scheme will cover the wages (plus associated costs) of new jobs created for any 16 to 24-year-olds – who are at risk of long-term unemployment and claiming Universal Credit – for a six month work placement. 

The government will fully fund each “Kickstart” job by paying 100% of the age-relevant National Minimum Wage, National Insurance and pension contributions for 25 hours a week. Employers will be able to top up this wage and offer kickstarters' training and support to find a permanent job. The government will also help by paying employers £1,500 to set up support and training for people on a Kickstart placement. Any employers, regardless of size, can apply for funding. However, there are conditions that must be met including that the job placements created with Kickstart funding must be new jobs. 

Young people will be referred into the new roles through their Jobcentre Plus work coach with the first Kickstarts expected to begin at the start of November. The scheme, which will be delivered by the Department for Work and Pensions will initially be open until December 2021, with the option of being extended.

What are the maximum weekly working hours?

There are working time limits that state the legal maximum weekly working hours that a person has to work. They should not exceed 48 hours a week on average. The maximum hours for under 18’s is fixed at no more than 8 hours a day or 40 hours a week.

The average working hours are calculated over a 17-week period and includes overtime. This means that an employee may work more than 48 hours in some weeks as long as the average over the 17-week period does not exceed 48 hours. A person can choose to work more by opting out of the 48-hour week but cannot be forced to do so or suffer any detriment by not signing. This is known as an opt-out agreement.

There are some exceptions where employees may have to work more than 48 hours a week on average. This includes the following:

  • where 24-hour staffing is required;
  • in the armed forces, emergency services or police;
  • in security and surveillance;
  • as a domestic servant in a private household;
  • as a seafarer, sea-fisherman or worker on vessels on inland waterways;
  • where working time is not measured and you are in control, e.g. you are a managing executive with control over your decisions.

New edition of the employer bulletin

HMRC has released the latest issue of the 'Employer Bulletin' publication which includes summaries of recent changes and updates that have been announced which are relevant to employers and agents.

The topics covered in the latest edition include the following:

  • Coronavirus relief measures. Updates on the Coronavirus Job Retention Scheme, COVID-19 Statutory Sick Pay Rebate Scheme, Deferral of VAT payments, general Coronavirus guidance on supporting employees and a Benefits and Tax Credits Update.
  • Short term business visitor changes. HMRC’s rules for employers with short term business visitors (STBVs) from overseas branches or territories with which the UK does not have a Double Taxation Agreement changed from 6 April 2020. This is known as STBV Appendix 8. A number of changes have been made to HMRC’s guidance due to the COVID-19 outbreak.
  • Off-payroll working rules. The government has postponed the roll-out of off-payroll working rules to the private sector until 6 April 2021. This deferral was announced in response to COVID-19, to help businesses and individuals deal with the economic impacts of the pandemic and the government remains committed to introducing this policy.
  • COVID 19 – Salary Sacrifice. If an employee wishes to amend their terms and conditions of employment and opt out of a salary sacrifice arrangement directly because of the change in their circumstances due to COVID-19 (including furlough arrangements), this can be done. HMRC’s guidance includes further details.
  • Claiming Employment Allowance. The Employment Allowance increased by a third to £4,000 from 6 April 2020. The allowance is now only available to employers with employer NIC liabilities of under £100,000 in the previous tax year. Connected employers or those with multiple PAYE schemes will have their contributions aggregated to assess eligibility for the allowance.
  • Official Rate of Interest for the 2020-21 tax year. From 6 April 2020, the official rate of interest was reduced to 2.25% (from 2.5%). This interest rate is used to calculate the Income Tax charge on the benefit of employment related loans and the taxable benefit of some employer-provided living accommodation.

Adding new employees to payroll

Employers that take on a new employee need to work out which tax code and starter declaration to use in their payroll software. Incorrect tax codes can lead to the new employee paying more tax than is due.

The necessary information can be collected from the employee’s P45 or by asking the new employee to complete HMRC's new starter checklist (if they do not have a recent P45). A number of changes have been made to the new starter checklist from April 2020 to make it easier to complete.

The information collected must be held in the employers’ payroll records for the current year and the 3 following tax years. The new employee's tax code must be sent to HMRC using a Full Payment Submission (FPS) on or before the new employee’s first payday.

The required information usually comprises the following, the employee’s:

  • date of birth
  • gender
  • full address
  • start date

From the employee’s P45:

  • full name
  • leaving date from their last job
  • total pay and tax paid to date for the current tax year
  • student loan deduction status
  • National Insurance number
  • existing tax code.

Tax relief for working from home

If your employer has requested that you work from home you can claim tax relief for some of the bills you pay that are related to your work. These tax reliefs have always been available, but as many of us are now being instructed to work from home, a claim for the use of your home, from your employer or HMRC, may be relevant.

Employers can reimburse employees for the additional household expenses incurred through regularly working at home. The relief covers expenses such as business telephone calls or heating and lighting costs for the room in which you are working. Expenses that are for both private and business use (such as broadband) cannot be claimed.

Since 6 April 2020, your employer can pay you up to £6 per week (or £26 a month for employees paid monthly) to cover your additional costs if you have to work from home. These figures increased from £4 per week (or £18 a month for employees paid monthly) up to 5 April 2020. You will not need to keep any specific records if you receive this fixed amount.

Alternatively, you can claim tax relief from HMRC. You can claim more than the quoted amount, but you will need to provide evidence. Note, if you have agreed with your employer to work at home voluntarily, or you choose to work at home, you cannot claim tax relief on the bills you have to pay.

Further details on Coronavirus Job Retention Scheme

HMRC has published further details on how the new Coronavirus Job Retention Scheme will work in practice. It had already been announced that the new scheme will see the government cover up to 80% of wage costs, up to a cap of £2,500 per month, for each employee that has been furloughed (on a leave of absence). The scheme will run for at least 3 months, backdated from 1 March 2020, but will be extended if necessary.

It is unclear if HMRC will rely on their published guidance or if we will see new legislation introduced. For now, the additional guidance for businesses seeking to claim support for employee’s wages includes additional information that had not been announced. HMRC expects the new online service to be available by the end of April 2020. 

The main points covered in the new guidance are as follows:

  • The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020. 
  • Any UK organisation with employees can apply. This includes charities, recruitment agencies and public authorities. The government does not expect many public sector employers to use the scheme as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the Coronavirus outbreak. 
  • Furloughed employees must have been on the payroll on 28 February 2020 and can be on any type of contract. This includes full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. With agency employees, the scheme is only available for agency employees who are not working. The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
  • If an employee is working, but on reduced hours, or for reduced pay, they are not eligible for this scheme. The employer will have to continue paying the employee through their payroll and pay their salary subject to the terms of the employment contract you agreed.
  • Employers must be mindful not to discriminate in deciding who to offer furlough too.  Equality and discrimination laws will continue to apply in the usual way. The issue of seeking to protect vulnerable workers has not been specifically covered in the guidance. 
  • To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
  • There are specific issues that must be considered if an employee is on unpaid leave, on Statutory Sick Pay, has more than one job or takes part in volunteer work or training. For example, employees on sick leave or self-isolating should get Statutory Sick Pay but can be furloughed after this.
  • Employees on maternity (or similar) leave can continue to draw SMP (or similar) payments and the normal rules continue to apply for up to 39 weeks. 
  • Employers need to make a claim for wage costs through this scheme. Employers will receive a grant of up to the lower of 80% of wage costs or a capped £2,500 per month, plus the associated employer NICs and minimum automatic enrolment pension contributions on that subsidised wage.  Fees, commissions and bonuses are not included.
  • An employer can choose to top up to 100% but does not have to under the scheme. Employers need to be mindful of any contractual entitlements.
  • Where an employee has varied pay, the employer can claim for the higher of the same month's earning from the previous year; or average monthly earnings from the 2019-20 tax year.
  • Individuals are only entitled to the minimum wage for the hours they work.  So, if they are furloughed and do not work, and 80% of their normal earnings would take them below the minimum wage based on their normal working hours, they still only receive 80% as they are not working.  However, they are entitled to be paid NMW for any time spent training.
  • Furlough leave must be taken in minimum blocks of three weeks to be eligible for funding. Claims can be backdated until the 1 March if applicable, but employers can only claim once every three weeks.
  • The government will issue further guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.
  • Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
  • HMRC will retain the right to retrospectively audit all aspects of a claim.
  • Employees that have been furloughed can still be made redundant while on furlough or immediately after.  The normal redundancy rules continue to apply. 

Sick pay if you are unable to work

The government has announced a number of funding and support measures to help those affected by the COVID-19 virus outbreak. A significant number of the measures are designed to help provide financial support at this most difficult time.

One of the main measures announced relates to the provision of sick pay. You are entitled to receive £94.25 per week Statutory Sick Pay (SSP) if you’re too ill to work. It’s paid by your employer for up to 28 weeks. The payment of SSP will be from Day 1 (not Day 4) if you are absent from work due to sickness or need to stay at home due to COVID-19.

If you have COVID-19 or have been advised to stay at home, you can get an 'isolation note' by visiting NHS 111 online. This replaces the need for a 'fit note', sometimes called a 'sick note' after 7 days of sickness absence. Isolation notes will also be accepted by Jobcentre Plus as evidence of your inability to attend.

If you cannot claim SSP, for example if you are self-employed or earning below the Lower Earnings Limit of £118 per week you will have easier access to Universal Credits or the new style Employment and Support Allowance.

If you are eligible the Employment and Support Allowance, it will now be payable from day 1 of sickness, rather than day 8. This applies if you have COVID-19 or are advised to stay at home.

IR35 rules change delayed

The Chief Secretary of the Treasury, Steve Barclay, made an unexpected announcement to parliament on the night of 17 March 2020. The announcement confirmed that the government are postponing the roll-out of IR35 measures to the private sector that would have affected the tax status of many incorporated contractors across the UK.

This a welcome change as it will defer much disruption in this sector until the worst aspects of the COVID-19 outbreak have passed. The new rules are now delayed and will come into effect from 6 April 2021, a year later than planned.

The Chief Secretary of the Treasury said that:

'This is a deferral in response to the ongoing spread of COVID-19 to help businesses and individuals. This is a deferral not a cancellation and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company pay broadly the same tax as those employed directly.'

The announcement of these changes will unfortunately come too late for some independent contractors whose large company clients may have already made changes in advance of the expected introduction of the new rules. These changes were expected to raise over £1.1bn for the public purse in 2020-21.

Change to off-payroll working rules

A welcome change to the implementation of the new off-payroll working rules has been announced. The Government has confirmed that the changes that come into effect April 2020 will not be retrospective. This means that the new rules will only apply to payments made for services provided on or after 6 April 2020. This change was in response to representations from many large and medium businesses with concerns about the rules that would apply and from when. 

The rules for individuals providing services to the public sector via an intermediary such as a Personal Service Company (PSC) changed from April 2017. The new rules shifted the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the public sector receiving the service.

In the 2017 Autumn Budget, the Government announced plans to extend these rules to off-payroll working in the private sector from 6 April 2020. The changes are expected to raise over £1.1bn for the public purse in 2020-21. 

From 6 April 2020, all medium and large-sized clients will be responsible for deciding the employment status of workers. The changes mainly apply to businesses with an annual turnover of more than £10.2 million (known as the simplified test).

If the simplified test does not apply, then the rules still apply if the private sector client meets 2 or more of the following conditions:

  • an annual turnover of more than £10.2 million
  • a balance sheet total of more than £5.1 million
  • more than 50 employees.