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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Employment income: household expenses: payments to reimburse additional costs: introduction

Section 316A ITEPA 2003

Section 137 Finance Act 2003 introduced a new exemption for payments by employers to reimburse employees for reasonable additional costs they incur while working at home under homeworking arrangements. The legislation can be found at Section 316A ITEPA 2003. The exemption applies to payments made on or after 6 April 2003 for expenses incurred on or after that date.

The exemption only applies to payments made by the employer. It does not entitle an employee to deduct unreimbursed household expenses. To deduct unreimbursed household expenses an employee must satisfy the much more restrictive tests in Section 336 ITEPA2003, see EIM32760.

Homeworking arrangements

There is a definition of “homeworking arrangements” in Section 316A(3). You can accept that there are homeworking arrangements where two tests are met.

  • There must be arrangements between the employer and the employee and
  • the employee must work at home regularly under those arrangements.

The arrangements need not be in writing but usually will be. They do not need to apply to all employees. The exemption does not apply where an employee works at home informally and not by arrangement with the employer. For example, it will not apply where an employee simply takes work home in the evenings. It applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises.

You should accept that an employee works at home regularly where working at home is frequent or follows a pattern. For example, where an employee agrees to work three days each week on the employer’s premises and two days at home you should accept that the work at home is regular. This will be so even if the days on which the employee works at home vary from week to week.

Other guidance

For guidance on the household expenses the employer can reimburse see EIM01474.

For guidance on the amounts that can be reimbursed see EIM01476.

For an example see EIM01478.

As regards NICs, see NIM05682.