Why government should increase working from home tax relief
As the gap widens between the cost of living and the value of working from home tax relief - is it a simple way government can put cash back in our pockets?
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The working from home tax relief predates the pandemic ‒ it has been in place for decades and the amount available to claim hasn’t changed.
The rules around being able to claim it were loosened as a result of Covid-19 but the costs people incur when working from home have increased enormously since then.
For example, if you were on an energy tariff subject to the energy price cap back in 2020 then the typical household would have paid around £1,042. The full working from home tax relief would have covered 6% of that bill for basic rate taxpayers, 12% for higher rate taxpayers, and almost 13.5% for additional rate taxpayers.
Bills have rocketed since then, with the energy price cap set to hit £3,549 within weeks. The full working from home tax relief will only cover 2.5% of the bill for basic rate taxpayers, 3.6% for higher rate taxpayers, and almost 4% for additional rate taxpayers.
If the rumoured plan to cap energy bills at £2,500 does happen the full working from home tax relief would have covered 2.4% of that bill for basic rate taxpayers, 4.9% for higher rate taxpayers, and 5.6% for additional rate taxpayers.
That’s clearly not enough to make a tangible difference when costs are rocketing.
What’s more, we've only covered energy bills ‒ there may be other costs incurred as a result of working from home which are also more substantial today than they were just a couple of years ago.
Improved working from home tax relief will put money back in pockets
So, is the government going to adapt the working from home tax relief, now that we have a new Prime Minister in place?
We asked HM Treasury if there are plans to increase the working from home tax relief given the cost of living crisis, but were told that the department does not 'speculate on tax policy outside of fiscal events' it said.
Given a ‘fiscal event’ ‒ rather than an official emergency Budget ‒ looks likely to be held in the coming weeks now that Truss and her team are in place, and are promising tax cuts.
We may not have to wait long to find out whether they have recognised working from home tax relief is an area that needs addressing.
John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.
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