How the working from home tax rules can help with your energy costs
If you work from home, you may be worried about increasing energy bills. However, there are some tax and benefit rules that might help ease some of the cost for you.
Whether you are employed or self-employed, there are five ways the tax and benefits system may be able to help with your energy costs which we set out below.
If you are employed – ask your employer to help
Claim flat rate tax relief
Claim actual costs
If you are self-employed, remember to include any working from home costs in your tax return as a deduction!
Make sure your benefits position is correct
- If you are employed - ask your employer to help
Employers can make payments of £6 a week or £312 per year to an employee for reasonable additional costs incurred for working at home. For example, the extra cost of gas, electricity and water (if metered) for your workspace. Work telephone calls can be paid by employers separately.
Employers do not have to make these payments, it is up to them if they want to pay them. But these payments are tax-exempt, which may encourage some employers to make them. So if you do not currently receive anything from your employer, it is probably worth asking them about it.
No records need to be kept by employers for payments up to £6 per week or £312 per year. If payments exceed these limits (see below), an employer should ask for evidence from an employee and keep records.
In order for your employer to make the tax-exempt payments, you must have an arrangement with them where you regularly work at home. The ‘regularly’ condition will be met if working at home is frequent or follows a pattern, for example two days a week (even if the days change). Informal/occasional instances of working from home are not enough. More information about the requirements can be found here.
- Claim flat rate tax relief
If your employer does not give you a payment (see above), then you may be able to claim tax relief on £6 a week or £312 a year for the cost of light, heat etc. for your workspace. This isn’t as valuable as getting the full amount paid by your employer as you are only getting tax relief on the amount claimed. For example, if you want to claim the tax relief on £312 and you pay tax at a rate of 20% in that tax year, you will receive tax relief of £62.50 (20% of £312).
To claim tax relief, you must be required to work from home. Being ‘required’ to work from home is a bit more strict than simply having a regular homeworking arrangement in place. But it could apply if it is written into your contract that your place of work is your home, or if you have to work from home because your employer does not have available office space.
In 2020/21 and 2021/22 during the coronavirus pandemic, the government said that people who had to work from home due to lockdowns, counted as being ‘required’ to work from home. In addition, under a relaxation, people could claim tax relief on £6 a week for the whole tax year even if they only worked from home for one day!
During 2022/23, this relaxation remains in place, but the lifting of coronavirus restrictions means fewer people are likely to be eligible to claim for any part of the year as they aren’t ‘required’ to work from home. To be clear, if you are now working from home more regularly but this is your choice, you won’t be able to claim the tax relief from 6 April 2022.
For help with how to make a claim for tax relief if you qualify, see our recent news article, which sets out exactly what you need to do in seven easy steps.
- Claim actual costs
What if tax relief on £6 a week or £312 a year isn’t enough to cover the extra cost of your bills?
There is another option. Instead of claiming tax relief on the flat rate amount, you can work out your actual costs instead. This means calculating the total cost of your utility bills (such as gas, electricity and metered water rates) and then identifying the work related proportion of those costs. It can be a lot more effort than just claiming the flat rate amount, but it could mean a larger amount of tax relief. Note - council tax or mortgage/rent don’t count as expenses for employees, as these costs would be incurred anyway.
HMRC does not provide exact guidance on how this calculation should be done – but to be fair and reasonable, HMRC would probably expect you to take into account your usage, the proportion in terms of area of the home and how long it is used for work purposes as compared to any other use.
For example, you have 5 rooms in your house and use one as a home office for 8 hours a day (your family use it to watch TV in the evenings). Your gas and electricity bill for the year is £4,000. Your starting point would be £800 (£4,000 divided between the 5 rooms in your house). If you work full time, you typically have 230 workdays in a year (365 less weekends and holidays) so divide 800 by 365 and then multiply it by 230 to get closer to your actual annual work expense (£504). To take into account the room is used for a few hours each evening for your family to watch TV, you would further prorate it by 8/10 hours (say), giving you £403.
Once you have calculated the amount you want to claim tax relief on, see our recent news article, which sets out exactly how to claim it. If you want to claim tax relief on £403 rather than £312, remember to keep a copy of your household bills and workings – especially if you later change energy supplier!
- If you are self-employed, remember to include any working from home costs in your tax return as a deduction!
If you are self-employed, the costs of working from home can be deducted as an allowable business expense. This is often overlooked as you may not have a receipt or specific entry in your accounts to remind you to include it as a deduction when you are doing your tax return.
Whether you are using the cash basis or accruals basis for calculating taxable profits, you may benefit from using HMRC’s simplified expenses regime. This broadly allows a business to claim flat rate expenses for working from home.
Instead of calculating the business use proportion of utility bills, a flat rate is claimed depending on the number of business hours worked each month. The current rates are as follows:
Number of hours worked per month Allowable amount 25 or more £10.00 51 or more £18.00 101 or more £26.00 As the expense rules are different for the self-employed than employees, in addition to this amount you can still claim a business proportion of council tax, mortgage interest/rent costs and internet and phone costs.
These flat rate allowances are relatively modest amounts and so may result in a smaller claim than if you claim an appropriate proportion of your actual costs, but they are simpler to calculate and would not be subject to scrutiny by HMRC in the event of an enquiry, provided they have been calculated correctly.
If you would prefer to claim actual home-running costs – you should apportion them for business use on a fair and reasonable basis, such as in the manner set out above. There are several examples of how costs may be apportioned in HMRC's Business Income Manual.
Don’t forget there may be other ‘hidden’ business costs from working from home such as additional household insurance, printer ink and software packages! These can all be included as deductions in your tax return.
- Make sure your benefits position is correct
If you are employed and getting universal credit (UC) or tax credits and incur working from home expenses, then make sure you tell DWP or HMRC about any working from home costs as they could reduce your earned income for UC or tax credits purposes, meaning a higher award.
If you are self-employed, and have made deductions for home working expenses when calculating your profit from self-employment, be careful not to deduct them again when reporting figures to HMRC or DWP. The rules on what can be deducted can be different for benefits than tax - so check the rules of the benefit you are claiming carefully.
Other information
If you work from home, you may expose your home to business rates rather than council tax, although this is unlikely if there is just minor work or business use.
If you work from home, there may be an impact on the eligibility of your home for private residence relief for capital gains tax. HMRC have guidance on this. Note that if you use a room for both work and private purposes, this will not affect the availability of capital gains tax relief.
You can find some information about the schemes and grants available to help people with energy costs on the following websites: