The government is reviewing the tax relief which allows employees to claim up to £125 a year if they work from home after it has cost the taxpayer £500m over the course of the pandemic
It has been reported that the Treasury and HMRC are looking into the relief and are planning to change the eligibility requirements and how much can be claimed from the scheme as the take-up has increased significantly over the last 12 months.
First reported in the Telegraph, an unnamed Treasury source said: ‘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.’
According to HMRC, since March 2020 the relief has cost the Exchequer around £348.6m however the true figure could possibly be closer to £500m as workers can backdate their claims for the past four years.
In 2020, the Office for Budget Responsibility estimated that the scheme’s cost to the taxpayer would rise 12-fold, from around £2m a year to £25m however, the scheme carries the potential to cost the taxpayer closer to £836.3m with this figure being calculated just from basic rate taxpayers.
In the 2020-21 tax year, 4.9m people successfully claimed the relief, and according to statistics from the Office for National Statistics (ONS) 13.4m people were working from home up to 16 January 2022 when the government lifted the work from home guidance.
The relief was introduced in 2003 to help home workers with gas, heating, internet, and other utility bills but this had to be proven by the employee in order to claim.
At the start of the pandemic when the work from home order was passed, the rules for the scheme were relaxed so that people no longer had to prove they worked from home regularly to claim. In addition, claimants were eligible for the full tax break meaning that working from home for just one day during the tax year was enough to claim the whole yearly sum.
The tax-free relief was also raised from £4 to £6 a week. Over a year, this adds up to £62.40 for basic rate payers and £124.80 for higher earners. It was due to finish in April 2021, but it was then extended for a further 12 months.
The increased uptake is most likely due to consumer experts raising awareness of the scheme, such as the founder of MoneySavingExpert Martin Lewis who has repeatedly encouraged the public to take advantage over the last two years.
In the last year, many MPs have come forward and criticised the relief stating that many people had actually saved money from working from home and that the Treasury needed to harness all the extra money it can.
On the tax relief, an HMRC spokesman said: ‘Tax relief for working from home is there to help people with the additional household costs of having to work from home. It has been a key form of government support for millions of workers during the pandemic.’
The Treasury has been contacted for comment.