Reminder of working from home allowances

Employees who work from home may be able to claim tax relief for bills they pay that are related to their work.

Employers may 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. Expenses that cover private and business use (such as broadband) cannot be claimed. Employees may also be able to claim tax relief on equipment they have bought, such as a laptop, chair or mobile phone.

Employers can pay up to £6 per week (or £26 a month for employees paid monthly) to cover an employee’s additional costs if they have to work from home. Employees do not need to keep any specific records if they receive this fixed amount.

If the expenses or allowances are not paid by the employer, then the employee can claim tax relief directly from HMRC. Employees will receive tax relief based on their highest tax rate. For example, if they pay the 20% basic rate of tax and claim tax relief on £6 a week, they will receive £1.20 per week in tax relief (20% of £6). Employees can claim more than the quoted amount but will need to provide evidence to HMRC. HMRC will accept backdated claims for up to 4 years.

Employees may also be able to claim tax relief for using their 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 the place of work. The rules are different for temporary workplaces where the expense is usually allowable or if an employee uses their own vehicle to undertake other business-related mileage.

Note, that if an employee agreed with their employer to work at home voluntarily, or they choose to work at home, they cannot claim tax relief on the bills they have to pay. If an employee previously claimed tax relief when they worked from home because of coronavirus (COVID-19), they might no longer be eligible for relief.

What your tax code means

The letters in your tax code signify your entitlement (or not) to the annual tax-free personal allowance. The tax codes are updated annually and help employer’s work out how much tax to deduct from an employee’s pay packet. 

The basic personal allowance for the current tax year, which started on 6 April 2022, is £12,570. The corresponding tax code for an employee entitled to the standard tax-free Personal Allowance 1257L. This is the most common tax code and is used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

There are many other numbers and letters that can appear in your tax code. For example, there are letters that show where an employee is claiming the marriage allowance (M) or where their income or pension is taxed using the Scottish rates (S). The basic rate limit for 2022-23 is £37,700 except for those defined as Scottish taxpayers who have a lower basic rate limit as well as an intermediate rate. If your tax code numbers are changed this usually means your personal allowance has been reduced.

There are also emergency tax codes (W1 or M1) which can be used if a new employee doesn’t have a P45. These codes mean that an employee’s tax calculation is based only on what they are paid in the current pay period.

If your tax code has a 'K' at the beginning, this means that deductions due for company benefits, state pension or tax owed from previous years are greater than your personal allowance. However, the tax deduction for each pay period can’t be more than half your pre-tax pay or pension.

It is important to check your tax code to ensure the correct information is being used. If you have any queries we can help, or you can check with your employer or HMRC.

Directors and National Minimum Wage

Company directors or any other person who has been appointed to a position by a company or organisation but doesn’t have a contract or receive regular payment as office holders are neither employees nor workers.

Company directors who also have an employment or worker's contract can be both an office holder and an employee at the same time. If this is the case, the director would need to be paid the relevant National Minimum Wage (NMW) or National Living Wage (NLW).

If there is no employment contract or other evidence of an intention to create an employer/worker relationship for a company director, then the NMW / NLW minimum rates will not apply. A contract of employment can be written, expressed orally or implied.

The directors would only be covered by the NMW / NLW if they were also defined as a worker in the relevant Act.

A worker is defined in the National Minimum Wage Act 1998, section 54(3) as someone who has entered into or works under (or, where the employment has ceased, worked under):

  • a contract of employment; and
  • any other contract by which the individual undertakes to perform work or services personally for someone else (unless the individual is working on a genuinely self-employed basis for a client or customer).

Careful consideration needs to be given especially to directors of personal service companies to ensure the correct tax treatment is in place whilst at the same time complying with employment law and minimum wage legislation.

Employing someone step by step

There are a multitude of rules and regulations that you must be aware of when you employ staff.

HMRC’s guidance (entitled Employ someone: step by step) sets out some important issues to be aware of when taking on a new employee.

This includes the following:

  1. Check your business is ready to employ staff – check whether you need to hire someone on a full time or part time basis.
  2. Recruit someone. This includes advertising the role and interviewing candidates. You must also check that they have the right to work in the UK and you may also need to apply for a DBS check (formerly known as a CRB check) if you are working in a field that requires one, e.g., with vulnerable people or security.
  3. Check if the new employees need to be enrolled into a workplace pension.
  4. Agree a contract and salary. Send details of the job (including terms and conditions) in writing to your employee. You need to give your employee a written statement of employment if you’re employing someone for more than 1 month.
  5. Tell HMRC about your new employee. You can do this up to 4 weeks before you pay your new staff. This process must also be completed by directors of a limited company who employ themselves to work in the company.

Tax relief for job expenses

Employees who are working from home may be able to claim tax relief for bills they pay that are related to their work.

Employers may 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 you are working in. Expenses that are for private and business use (such as broadband) cannot be claimed. Employees may also be able to claim tax relief on equipment they have bought, such as a laptop, chair or mobile phone.

Employers can pay up to £6 per week (or £26 a month for employees paid monthly) to cover an employee’s additional costs if they have to work from home. Employees do not need to keep any specific records if they receive this fixed amount.

If the expenses or allowances are not paid by the employer, then the employee can claim tax relief directly from HMRC. Employees will receive tax relief based on their highest tax rate. For example, if they pay the 20% basic rate of tax and claim tax relief on £6 a week, they will receive £1.20 per week in tax relief (20% of £6). Employees can claim more than the quoted amount but will need to provide evidence to HMRC. HMRC will accept backdated claims for up to 4 years.

Employees may also be able to claim tax relief for using their 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 the regular place of work. The rules are different for temporary workplaces where the expense is usually allowable if the employee uses their own vehicle to do other business-related mileage.

Note, that if an employee agreed with their employer to work at home voluntarily, or they choose to work at home, they cannot claim tax relief on the bills they have to pay. If an employee previously claimed tax relief when they worked from home because of coronavirus (COVID-19), they might no longer be eligible for relief.

Interest rates on student loans from September 2022

Student loans are part of the government’s financial support package for students in higher education in the UK. They are available to help students meet their expenses while they are studying. It is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The Student Loans Company (SLC) is responsible for collecting the loans of borrowers outside the UK tax system.

The interest rates that will apply for the 2022-23 academic year were announced last month. Earlier in the summer, the government had announced that student loan borrowers faced a 12% interest rate from September 2022. The government announced in June that there would be a cap of 7.3% on student loan interest rates for current graduate borrowers to protect them from a rise in inflation. This interest rate was calculating using predicted market rates. The actual market rate reduced to 6.3%, so the cap has been lowered to this figure.

The 6.3% rate will apply to student loan borrowers on Plan 2 (undergraduate) and Plan 3 (Postgraduate) loans. This change will impact the total value of the loan, but there is no difference in the monthly repayments paid.

A spokesperson for the Student Loans Company said:

'The change in interest rates is automatically applied so customers don’t need to take any action. We encourage customers to use SLC’s online repayment service to regularly check their loan balance and repayment information, as well as ensure their contact information is up-to-date.'

There are also new measures that will apply from 2023-24 to ensure that new graduates will not, in real terms, repay more than they borrow.

Working from home

If you receive no compensation from your employer, you can still claim tax relief for certain costs that arise when working from home. 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 four years of the end of the tax year that you spent the money.

Costs you may be able to claim for include:

  • if you purchase your own uniforms, work clothing and tools for work;
  • the cost of repairing or replacing small tools you need to do your job as an employee (for example, scissors or an electric drill); and
  • cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots).

A claim for valid purchases can be made to recover actual costs or as a 'flat rate deduction'. However, you cannot make a claim for relief on the initial cost of buying small tools or clothing for work.

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. You should also be able to claim if you use your own vehicle to undertake other business-related mileage.

Please note, if you have agreed with your employer to work at home voluntarily, or if you choose to work at home, you cannot claim tax relief on the bills you have to pay. If you previously claimed tax relief when you worked from home because of coronavirus (COVID-19), you may no longer be eligible for relief.

Employee ownership and involvement

There are many ways that employees can own a stake in their employer's company. However, employee ownership usually refers to a situation where all employees of a business have a ‘significant and meaningful’ stake in a business. This means employees have a financial stake in the business (e.g., by owning shares). Other types of business (e.g. charities or sole traders) may have to change their legal structure so they can sell shares. Employee-owned firms can also operate as co-operatives.

In addition, employees must have a say in how the business is run, known as ‘employee engagement’. Different ways of engaging employees are suitable for different businesses.

These can include:

  • An employees’ council or other consultation group.
  • A constitution defining the company’s values and its relationship with employees.
  • Employee directors on the board, with the same responsibilities as other directors.
  • Working with trade unions on issues like pay and conditions.

The latest statistics published by the Employee Ownership Association (EOA) say that the employee ownership sector has more than doubled in the past three years, exceeding the 1,000 milestone for the first time.

Emergency tax codes

The letters in an employee’s tax code signify their entitlement (or not) to the annual tax-free personal allowance. The tax codes are updated annually and help employer’s work out how much tax to deduct from an employee’s pay packet. 

The basic personal allowance for the tax year starting 6 April 2022 is £12,570 and the tax code for an employee entitled to the standard tax-free Personal Allowance 1257L. This is the most common tax code and is used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

Emergency tax codes can be used if HMRC does not get a taxpayer’s income details in time after a change in circumstances such as:

  • a new job
  • working for an employer after being self-employed
  • getting company benefits or the State Pension

Employees on an emergency tax code will see one of the following codes on their payslip:

  • 1257 W1
  • 1257 M1
  • 1257 X

These codes mean that an employee’s tax calculation is based only on what they are paid in the current pay period. The emergency tax codes are temporary and will usually be updated once the necessary details about previous income or pension payments are sent to HMRC.

Entitlement to National Minimum Wage

Employers must ensure they are paying staff the new National Minimum Wage (NMW) and National Living Wage (NLW) rates for the period from 1 April 2022 – 31 March 2023. The NLW is the minimum hourly rate that must be paid to those aged 23 or over. The rate for the NLW is £9.50. The hourly rate of the NMW (for 21-22-year-olds) is £9.18. The rates for 18-20-year-olds is £6.83 and the rate for workers above the school leaving age but under 18 is £4.81. The NMW rate for apprentices is £4.81.

HMRC’s manuals discusses the legal entitlement for employees to be paid the NMW. Most workers in the United Kingdom who are over compulsory school leaving age (and those who ordinarily work in the United Kingdom) are entitled to be paid at least National Minimum Wage rates. 

This entitlement to the NMW is set out in the National Minimum Wage Act 1998, section 1 as follows:

(1) A person who qualifies for the National Minimum Wage shall be remunerated by his employer in respect of his work in any pay reference period at a rate which is not less than the National Minimum Wage.
(2) A person qualifies for the National Minimum Wage if he is an individual who-

  1. is a worker.
  2. is working, or ordinarily works, in the United Kingdom under his contract, and
  3. has ceased to be of compulsory school age.

It is important that employers ensure they pay employees at least the minimum wage to which they are entitled. There are penalties for non-payment of minimum wages of up to 200% of the amount owed. The penalty is reduced by 50% if all of the unpaid wages and 50% of the penalty are paid in full within 14 days.

The maximum fine for non-payment can be up to £20,000 per employee. Employers who fail to pay, face up to a 15-year ban from being a company director as well as being publicly named and shamed.