In her 2025 Budget the Chancellor announced the end of tax deductions for “non-reimbursed homeworking expenses”. Will the loss of the deduction affect you and is there an alternative tax relief you can take advantage of?
Job expenses
The Chancellor’s 2025 Budget signaled the end of tax relief for household costs incurred by employees who work from home. The tax deduction will end on 5 April 2026. Therefore, 2025/26 is the final year for which tax relief can be claimed.
The change announced in the Budget only affects work-related household expenses incurred by employees (including directors) and has no impact on sole traders and business partners.
Low hanging fruit
Tax relief for homeworking was an obvious and easy target for the Chancellor to go after for the following reasons:
- The rules around the relief are somewhat confusing.
- A special concession because of the pandemic led to a general misunderstanding of the tax deduction.
- Dodgy media reports causing employees to claim the deduction despite not meeting the conditions.
Tax relief still allowed
Despite the restrictions placed on the relief, after 5 April 2026 tax relief will still apply to homeworking costs incurred by employees in two situations.
Situation one
The first allows employers to pay their employees a tax and NI-free allowance for additional household costs where:
- there’s an agreement between the employer and the employee (it needn’t be in writing) confirming they can work from home; and
- the employee works regularly from home. This doesn’t mean full time, but there must be a pattern (i.e. two days per week).
The employer can either pay a flat rate of £6 per week or a higher amount if justified.
Situation two
The second tax relief allows employers to provide goods and services to employees so that they can work from home. Unlike the first type of relief there’s no need for them to work regularly from home or for there to be a formal agreement. The provision of goods and services is tax and NI exempt as long as the employee’s private use is “not significant”.
HMRC’s view of what counts as not significant is quite generous, which means employees can get some real tax and NI-free advantage from this exemption.
There’s no financial cap but the employee must have a genuine need for the goods and services so they can do their job. Plus, the employer must pay for the goods and be contractually liable for their cost. The exemption can apply to, say, office equipment, e.g. a desk, chair, computer, etc., as well as services like phone and broadband.
Summary
As an employee or director, you won’t be allowed a tax deduction for homeworking expenses, whether at HMRC’s concessionary rate (£6 per week), a lesser or greater amount for 2026/27 and later years. Instead, your employer can pay you an unlimited tax and NI-free allowance if you incur homeworking costs and various conditions are met.
To discuss your tax obligations and liabilities contact us today – we’re here to help you!