The Chancellor is weighing up calls to double a little-used monthly allowance to offset higher utility bills when working from home as a result of the lockdown.
Proposals made include increasing the tax-free allowance from £26 per month to £50 per month and/or providing for full reimbursement of expenses incurred through a “gross-up” mechanism, where a worker receives more of their salary with fewer tax deductions.
HM Treasury has said all tax policy is under review and is understood to be considering a wider overhaul of duties, including increasing the rates of income tax, VAT and scrapping the pensions “triple lock” needed to cover the cost of Covid-19.
With lockdown measures meaning working from home will continue for many workers for the foreseeable future, Rishi Sunak is being urged to change the rules now.
Nimesh Shah of accountants Blick Rothenburg said: “As the Government aims to cautiously restart the economy Boris Johnson has asked that individuals should continue to work from home should where it is possible to do so, but he needs to look at the extra expenses they are incurring by being there. This may include higher electricity and heating bills, internet and phone costs and new computer equipment.”
Average energy bills will rise as much as £400 this year, according to forecasts from comparison site comparethemarket.com. It found 20 million households were using significantly more power than they were before the coronavirus crisis confined them to their homes, adding more than £30 to monthly costs.
Firms can offer employees a tax-free allowance of £26 a month to cover the increased cost of working from home. If an employer does not pay the allowance an employee can still claim back the proportion that is exempt from tax – £6.20 a month for a basic-rate taxpayer.
Further claims can be made if the true cost of working from home is higher, although claimants must provide detailed receipts as proof. Employees can only claim for work-related expenses, for example, business telephone calls or the extra cost of gas and electricity in a designated work space.
Claims for things used for both private and business use, for example, rent or broadband access, cannot be made.
Self-employed workers benefit from more generous tax treatment. For example, if a tenth of their home is used solely for their work they can deduct 10pc of their household running costs from their tax bill.
Rishi Sunak has used the unprecedented widening of state support for employees, self-employed and business as an opportunity to point at inconsistencies of how different people pay into and benefit from the tax system, saying everyone who wanted to benefit would have to pay equally in future.
The comment was understood to be a reference to the fact that self-employed people pay lower rates of National Insurance and experts have said the Chancellor is likely to be plotting a tax rise.
But Mr Shah said any changes should work both ways. He said greater harmony in the rules should not just mean more taxes for groups underpaying now, but greater relief for those who currently receive less from the state, too.