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HMRC internal manual

Employment Income Manual

Employment income: household expenses: example

This example shows what payments can be made to reimburse additional household expenses incurred when an employee works at home under homeworking arrangements.

An employer based in central London finds it difficult to recruit office staff. New employees are employed on the basis that they will work at home and the employer will provide all of the equipment they need to carry out their duties. There is no benefit charge on the provided equipment, see EIM21611. The employer also agrees to meet the additional household costs the employees incur while working at home.

Employees are contracted to work for 40 hours per week over 5 days. They each have a dedicated work area that is not used for any other purpose during their working hours. The employees have to meet the cost of heating and lighting the work area while they are working. On average the employees’ electricity and gas bills increase by £15 per quarter (less in summer but more in winter) after they begin to work at home. There is a liability for business rates and the net increase over the amount that would have been paid in council tax averages £100 per year. The employees also make more business telephone calls. So the employer makes the following annual payment.

Type Annual payment
Electricity and gas (£15 × 4 quarters) £60.00
Business rates £100.00
Telephone calls (12 per day at 2p each for 240 working days) £57.60
Total £217.60

This is rounded up to £218. The payment of £218 can be paid free of tax.