The government could weigh up closing a work from home tax loophole after HMRC alerted the chancellor that it had seen the Treasury lose out on almost £500 million during the pandemic, The Telegraph reports.
The tax relief scheme for people working from home has been in place since 2003 and is intended to help individuals weather extra costs incurred from home working, such as higher electricity and internet bills.
However, HMRC is now reviewing a rule which enables claimants that work from home for a single day to claim a tax break sum for the entire year.
Prior to the Covid-19 pandemic, work from home tax relief stood at £4 per week, but since the introduction of social restrictions saw millions of people begin working from home, the amount was raised to £6 per week.
In tandem with the increase, the rules around claiming the tax relief were also relaxed, enabling claimants to receive the full yearly sum without having to prove that they worked from home regularly.
Initially intended to be a temporary measure running up to April 2021, the government opted to extend the scheme for a further 12 months.
While the scheme is said to have seen the Treasury lose out on a minimum of £348.6 million over the last two years, the fact that claims can be backdated means that the true level of lost income is likely to be nearer £500 million.
The work from home tax relief prior to the pandemic is estimated to have cost around £2 million per year. The near £500 million lost over the last two years drastically exceeded even the forecasts of the Office for Budget Responsibility, which in 2020 predicted that the higher take-up of the tax relief could see the Treasury miss out on £25 million per year.
Since March 2020, HMRC said that 4.9 million people had successfully claimed the tax relief. Latest figures published by the Office for National Statistics indicate that one in four adults were working from home in the seven days to January 16 this year, which is equivalent to around 13.4 million people.
However, now that Covid Winter Plan B restrictions have been axed in England, the country is no longer operating under work from home guidance.
The Telegraph says that in the wake of the guidance change and the revelations over lost income, HMRC is preparing a report for chancellor Rishi Sunak, which is expected to recommend changes to the eligibility criteria and how much money can be claimed.
A Treasury source told the newspaper: “This is a tax relief that existed before Covid and it was there for legitimate reasons, but the take-up is now much higher, so it needs to be looked at.”
MPs have also pointed out that individuals working from home have already saved on public transport and fuel costs from not having to commute to work, and so should not necessarily need further remuneration for working from home.
Conservative MP Kevin Hollinrake, who sits on the House of Commons Treasury Select Committee, commented: “It is often in people’s financial interests and personal interests to work from home, so it doesn’t seem appropriate that there should be tax relief for those who choose to work from home rather than being forced to do so.
“It’s important that we get people back to workplaces, rather than giving them any incentive to work from home. Lots of businesses rely on those people being at work, and it’s good for people to be at work because that’s where you learn. So, for societal and economic reasons, it doesn’t make sense to have a tax break.”
The Treasury Committee chair, Mel Stride, added: “Clearly this is something the committee will want to look at closely and monitor to make sure that any proposed changes are sensible in terms of being fair to taxpayers but equally supporting the public finances.”
UKHospitality chief Kate Nicholls has also called for the government to disincentivise working from home in order to help entice business back into town and city centre venues which rely on passing trade from office-based workers.
Nicholls said: “This is a distortion in the tax regime that encourages a culture of working from home. It should be scrapped urgently.”
Any move to change the eligibility criteria would come as something of a government U-turn, with the Gov.uk Twitter account having recently encouraged individuals working from home to come forward and claim the tax relief.
Photo by Sarah Agnew on Unsplash
