An employer can pay an employee who regularly works at home under an agreed homeworking arrangement up to £6 a week, or £26 a month for monthly paid staff, free of tax and National Insurance without any evidence of the employee’s costs. The exemption is in section 316A of the Income Tax (Earnings and Pensions) Act 2003. Larger payments are also tax free, but only if the employer can show they do no more than cover the employee’s reasonable additional household costs.

What does section 316A actually exempt?

Section 316A ITEPA 2003 applies where an employer makes a payment to an employee for reasonable additional household expenses that the employee incurs in carrying out the duties of the employment at home under homeworking arrangements. Where it applies, no income tax arises on the payment. The section was introduced by section 137 of the Finance Act 2003 and covers payments made on or after 6 April 2003.

The statute defines two terms. “Household expenses” means expenses connected with the day to day running of the employee’s home. “Homeworking arrangements” means arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home.

For National Insurance, the National Insurance Manual at NIM05682 confirms that these payments are disregarded for Class 1 contributions because they reimburse expenses actually incurred in carrying out the employment. HMRC’s employer guidance says you do not need to report or pay tax on qualifying payments, so nothing goes on form P11D.

Which employees can receive it?

HMRC’s Employment Income Manual at EIM01472 says there are homeworking arrangements where two tests are met: there is an arrangement between employer and employee, and the employee works at home regularly under it. The arrangement need not be in writing, although it usually will be, and it does not have to cover every employee.

Hybrid and flexible working can qualify. HMRC accepts that home working is regular where it is frequent or follows a pattern, and gives the example of an employee who agrees to work three days a week on the employer’s premises and two at home, even if the home days change from week to week.

The exemption does not apply where an employee works at home informally rather than by arrangement. HMRC’s example is an employee who simply takes work home in the evenings. Unlike the old employee relief, there is no requirement that the employee must have no choice about working at home; a voluntary homeworking scheme is enough.

How much can be paid without evidence?

EIM01476 explains that since 6 April 2020 an employer can pay £6 a week, or £26 a month for monthly paid employees, to an employee working regularly at home without having to justify the amount. If the £6 rate is paid, the employee does not have to keep records of the extra spending. HMRC says it would expect £6 a week to be enough in most cases, particularly where the only extra costs are heating and lighting the work area.

For the tax years 2012 to 2013 through to 2019 to 2020 the guideline rate was £4 a week, or £18 a month. These older figures are relevant only if you are correcting past payroll records.

Which costs can the payment cover?

EIM01474 lists the kinds of reasonable additional costs that can be met. Typically they include:

  • the extra cost of heating and lighting the work area
  • the metered cost of increased water use
  • increased charges for internet access, home contents insurance or business telephone calls
  • any business rates that arise because of working at home

The costs must be incurred in carrying out the duties. Costs that would be the same whether or not the employee worked at home are excluded, such as mortgage interest, rent, council tax or water rates. So are costs that put the employee in a position to work at home, such as building alterations, furniture or office equipment. Equipment is dealt with under different rules, explained in our guide to equipment provided for home working.

Broadband has its own guidance at EIM01475. If the employee already paid for broadband before starting to work at home, there is no additional cost and a payment towards it is taxable through payroll. If the employee had no connection and needs one to work at home, the fee is an additional household expense that can be reimbursed tax free.

How can an employer pay more than £6 a week?

The £6 figure is a guideline, not a maximum. HMRC describes two ways to justify more:

  1. An agreed scale rate. The employer agrees a scale rate payment with HMRC in advance, calculated to do no more than reimburse the average additional costs employees meet while working at home. HMRC suggests it may be useful to agree that the rate rises each year with inflation. Once agreed, employees do not need to keep further evidence.
  2. Actual costs. The employer reimburses each employee’s actual additional costs, keeping records of how each payment was worked out, supported by evidence from the employee.

HMRC’s example at EIM01478 is an employer whose staff work at home full time. Their gas and electricity bills rise by about £15 a quarter, business rates add a net £100 a year over council tax, and business calls cost £57.60 a year. The employer pays £218 a year, rounded up from £217.60, and the whole amount is tax free.

What happens if the payment is too high?

HMRC’s employer guidance says that if you pay more than £6 a week, or £26 a month, you must be able to prove the payments are no more than the employee’s additional household expenses. Any amount above those costs counts as earnings. You work out the excess, add it to the employee’s pay and deduct PAYE tax and Class 1 National Insurance through payroll.

Where there is no supporting evidence of the employee’s actual extra costs, the taxable amount is the total paid minus the £6 a week limit. Where there is evidence, only the amount above the evidenced costs is taxable.

Illustration only. A small firm pays its monthly paid hybrid staff £26 a month each. That is £312 a year per person, all tax free with no paperwork beyond a note of the homeworking arrangement. One manager negotiates £40 a month instead, with no evidence of higher costs. The first £26 is exempt; the other £14 a month is taxable pay and goes through payroll.

Why does this payment carry more weight from April 2026?

From 6 April 2026, section 360B ITEPA 2003, inserted by section 21 of the Finance Act 2026, stops employees deducting additional household expenses from their earnings. EIM32759 confirms that this removal only affects unreimbursed costs and that the section 316A exemption for employer payments continues. HMRC’s April 2026 Employer Bulletin says the same: employers can still reimburse eligible homeworking costs without deducting income tax or National Insurance.

The practical effect is that the employer payment is now the only way for an employee to receive help with household costs free of tax. Our guide on whether employees can still claim working from home relief covers the employee side, including claims for earlier years.

What mistakes do employers make?

  • Paying an allowance to staff who only work at home occasionally or informally, with no arrangement in place.
  • Paying more than £6 a week without evidence or an agreed scale rate, and not putting the excess through payroll.
  • Reimbursing broadband that the employee already had before working at home.
  • Treating rent, mortgage interest or council tax as additional costs.
  • Assuming the payment must be in writing to qualify, or that it must go to every employee. Neither is required, though a written policy makes the position easier to show in an HMRC employer compliance check.
  • Confusing these payments with the wider paid and reimbursed expenses exemption, which depends on the employee being entitled to a deduction and so no longer helps with household costs.

For directors of their own companies, the same rules apply with some extra points, set out in working from home as a director.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.