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Tax treatment of employees working from home

Sarah Bradford of Writetax Ltd considers the tax treatment of employees working from home. She explores the provision of equipment, household expenses, tax relief and good practice, among other things.

Updated for Spring Budget 2020


A growing number of employees work from home for some or all of the time. Where the employer provides equipment or meets expenses, the associated tax implications must be considered.

Provision of equipment

Depending on the nature of the employee’s job, the employee may need certain equipment, such as a computer, in order to perform his or her role. The employer will generally provide this, and may also provide the employee with necessary supplies, such as paper, printer ink and suchlike.

Most employees would find it unfair to be taxed on the provision of items that are necessary for them to do their job, and fortunately HMRC agrees. The tax legislation provides for an exemption for accommodation, supplies and services used in employment duties (s316, ITEPA 2003).

The exemption covers the provision of items such as office furniture, stationery and office or workshop materials and supplies and computer equipment. Home telephone lines may also be covered if there is a clear business need for the employer to provide it (see HMRC’s Employment Income Manual at EIM21615). As with most exemptions, availability is contingent on the associated conditions being met.

The exemption provides that no liability to tax arises in respect of the provision for an employee of accommodation, supplies or services used by the employee in performing the duties of the employment as long as conditions A and B are met.

Condition A is that any use of the accommodation, supplies or services for private purposes by the employee or a member of the employee’s family or household is not significant.

In this context, use ‘for private purposes’ means:

  • use that is not use in performing the duties of the employee’s employment; and
  • use that is at the same time both use in performing the duties of the employee’s employment and other use.

Private use is disregarded where it is ‘not significant’. This is not defined in the legislation, but HMRC provides its interpretation at EIM21613. It states “where:

  • the employer’s policy about private use is clearly stated to the employees and sets out the circumstances in which private use may be made (this may include making the conditions clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences if this policy is not followed), and
  • any decision of the employer not to recover the costs of private use is a commercial decision, ie, based on the impractical nature of doing so, rather than a desire to reward the employee”
    it will accept that the test is met. 

HMRC further notes that the employer is not expected to keep detailed records of every instance of private use; the decision as to whether private use is not significant should not be determined by reference to the absolute time spent on private and business use; but rather in the context of the employee’s duties and the need for the employee to have the equipment or services provided in order to do their job.

The second condition which must be met for the exemption to apply, condition B, is that where the provision is otherwise than on premises occupied by the person making it (for example where they are provided in the employee’s home), the sole purpose of its provision is to enable the employee to perform the duties of their employment and what is provided is not an excluded benefit. Excluded benefits are:

  • motor vehicles, boats and aircraft;
  • a benefit that involves the extension, conversion or alteration of the living accommodation or the construction, extension, alteration of a building or other structure on land adjacent to and enjoyed with such accommodation
    Thus, a loft conversion to provide a home office or the construction of a separate office in the employee’s garden would fall outside the scope of the exemption.

Household expenses

Where an employee works from home, they may incur additional household expenses as a result.

The tax legislation provides an exemption where an employer makes a payment to an employee in respect of reasonable additional household expenses that the employee incurs in carrying out the duties of the employment at home under homeworking arrangements (s316A, ITEPA 2003). ‘Homeworking arrangements’ are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home. HMRC accepts that ‘homeworking arrangements’ exist (see EIM01472) if:

  • there are arrangements between the employer and the employee; and
  • the employee must work at home under those arrangements. 

Although the arrangements do not need to be in writing, it is good practice for them to be so. Also, they do not need to apply to all employees. HMRC will, however, expect to see a regular pattern of homeworking, for example an employee who works at home three days a week and at the employer’s premises two days a week. It is not necessary for the days working at home to be the same each week. Care should be taken with informal arrangements – HMRC states that the exemption will not apply if the employee simply takes work home to finish in the evening.

The household expenses that fall within the terms of the exemption would include items such as additional costs of heating and lighting the work area, increased water use, additional household insurance or additional internet costs. However, costs that do not vary whether the employee works at home or not, such as mortgage payments or rent, fall outside the scope of the exemption.

As regards broadband, if the employee already has a broadband connection (which most employees will do), the employer cannot reimburse the cost tax free. However, if the employee does not already have a broadband connection and needs one to do the work, the broadband cost is an additional household expense that can be met tax free under s316A, ITEPA 2003 (EIM01475).

The employer can reimburse the actual amount of the additional household expenses incurred as a result of working from home. These should be reasonable and relate to the duties. However, in practice this will be difficult and time consuming to determine. Instead, the employer can pay a tax-free allowance of £4 per week increasing to £6 per week from 6 April 2020 (see EIM01476) to cover the additional costs of working at home without needing to worry about determining the actual costs incurred.

Tax relief

Where the employer does not meet the costs of working at home, in theory, the employee may be able to claim tax relief as long as the wholly, exclusively and necessary condition is met. In practice this is difficult to achieve, and HMRC takes a harsh line where the employee chooses to work at home (denying relief) rather than being required to work at home (see EIM32760). Relief, where available, will be given only on items related to the duties, such as the cost of additional electricity or gas or business phone calls. No relief is available for expenses incurred for both business and private purposes.

HMRC has an online tool available which can be used to see if expenses incurred in working from home qualify for relief.

Good practice

Where clients’ employees work from home, the employer should ensure that there is a written homeworking agreement in place, detailing the homeworking arrangements, the equipment and supplies to be provided by the employer and any expenses that will be met.


George works as editorial assistant for a publisher of science journals. He is based at home. His employer provides him with a computer and printer to enable him to do his job. He uses the computer occasionally in the evenings and at weekends for private purposes.

The conditions are met and there is no taxable benefit arises on the provision of the computer. The private use of the computer is insignificant in terms of time when compared with the time that the computer is used for the duties of the employment.

HMRC has published a number of examples (see EIM21613) illustrating how it interprets the conditions in practice.

About the author

Sarah Bradford is director of Writetax Ltd, and editor of Small Business Tax & Finance. She writes widely on tax and National Insurance contributions and is the author of several books