Working From Home Payroll Updates

Tax relief for nonreimbursed working from home expenses is set to be abolished from 6th April 2026, following the Autumn Budget in November 2025. Home-workers could have easily missed this update, with headlines being dominated by frozen income tax thresholds, removal of the two-child benefit cap from 2026, and decisions to keep the Plan 2 student loan repayment threshold frozen.   

Previously eligible employees were able to claim up to £6 per week for working from home costs such as heating, electricity. Abolishing the employee tax relief will push the focus onto employers if staff are to receive any tax-free help with homeworking costs. 

Let’s look at how we got here, and why the UK government has retracted employee’s ability to self-claim working from home allowance.   

History  

Prior to the COVID-19 pandemic in 2020, when working from home was uncommon among many of the UK workforce, employees were able to claim tax relief if strict eligibility criteria was met. The rules stipulated that homeworking had to be required by the employer as a regular part of their employment duties, not just an occasional choice. Eligible employees up to the 2019/2020 tax year, were able to claim a flat rate of £4 per week only for the weeks where home working conditions were in line with HMRC’s guidelines.  

From Niche Perk to Pandemic Lifeline  

2020 saw the start of the COVID-19 pandemic which transformed working from home into the new normal, as the UK government-initiated restrictions to stay at home with only essential activities outside the home permitted.  HMRC relaxed the rules to make claiming simpler and more generous. Doubt we will hear simple, generous and HMRC in the same sentence again.  

Nevertheless, from April 2020 workers could claim £6 per week, for the whole tax year. This would be via a tax-free payment from their employer, or tax relief directly from HMRC in the form of an adjusted tax code. An online portal made the process quick and straight forward, and saw millions claim the relief in the 2020/21 and 2021/22 tax years.  

Tightening The Rules After Covid 

As we come to April 6th 2022, COVID-19 restrictions had started to lift, which coinciding with HMRC tightening the qualifying conditions for such an allowance; claimants again would only be eligible when they are genuinely required to work from home. The £6 per week continued, but workers who chose to work from home or adopted a hybrid split of home and office would tend not to qualify. 

So, if HMRC have once again tightened the rules to ensure workers can only claim due to their specific employment duties, why are we seeing it abolished in 2026/27.  

Why The Relief Is Being Abolished? 

Compliance. HMRC has highlighted high levels of incorrect and ineligible claims, indicating significant noncompliance. 

That, coupled with the fact that for a relatively low value allowance, it has become administratively laborious. The maximum saving is about £62 a year for a basic rate taxpayer and £124 for a higher rate taxpayer, yet HMRC must run an entire claims process, check eligibility and handle coding notices.  

Even though HMRC had already tightened the rules around eligibility, the government has argued that relief is now harder to justify when a large proportion of workers can choose to be remote.  

What Remains After April 2026 

Importantly, it’s the employee claim that’s being abolished, not the concept of a working from home allowance altogether. Employers will still be able to pay staff for genuine additional homeworking costs on a tax and national insurance free basis, provided the eligibility criteria is met in line with HMRC guidelines.  

This shifts the focus from HMRC to the workplace, giving employers two options:  

• Formalise tax free homeworking payments as part of their benefits package 

• Not offer any compensation once personal tax relief has gone 

For the individual employees, after 6th April 2026, support with homeworking costs will depend far more on your employer’s policy than on a government run tax relief. 

Impact On Payroll 

The decision by each organisation on whether they will continue with their own working from home allowance policy, will deem the impact on payroll.  

It is important to note, that whilst HMRC will be focusing more tightly on employment expenses, employers paying homeworking allowances will need good evidence that payments are justified. For payroll, that means:  

• Keeping clear records of who receives the allowance and why 

• Being able to show that amounts paid as “exempt” are reasonable and linked to additional costs 

• Making sure any changes in working pattern are reflected promptly  

The future of working from home allowances is far less about individual tax claims and far more about employer support.  Payroll will sit right in the middle of turning those decisions into compliant, well communicated pay. 

Why You Should Contact Us  

The Leppington Group Limited (TLG) is a UK headquartered company specialising in payroll advisory, audit and consulting services.  

Originally founded in 2011, TLG has established itself as a reputable, independent and trusted partner for organisations seeking expert guidance for any aspect of payroll requirements.  

TLG's core services include payroll audit & health checks, issue navigation, procurement, vendor selection, implementation guidance, project mediation, payroll administration, and cyber & privacy services.  

TLG's commitment to excellence, and a customer-centric approach, has elevated the organisation as a valuable resource for businesses seeking to optimise their payroll processes without the ‘Big Four’ price tag.  

TLG exists to make payroll simpler, businesses better and results clearer.