NIM05682 - Class 1 NICs: Expenses and allowances: Household expenses - payments to reimburse additional costs
With effect from 6 April 2003, payments by an employer to reimburse employees for reasonable additional costs they incur while working at home under homeworking arrangements are exempt from tax. See EIM01472.
Such payments are, of course, already disregarded for NICs purposes by virtue of paragraph 9 of Part 8 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (SI 2001 No 1004) because they are reimbursements of expenses actually incurred by an earner in carrying out his employment.
See NIM05020 for general guidance regarding the treatment of business expenses for NICs purposes.
A guideline rate of £2 per week has been published for the purposes of the tax exemption, which increased to £3 per week from 6 April 2008. This amount can be paid to employees working regularly at home without the employer having to justify the amount paid or the employee having to keep any records to demonstrate the additional expenditure.
The £2 per week can also be used for NICs purposes. This too increased to £3 per week from 6 April 2008 in line with the amount to be exempt from tax. It is important to remember, however, that the figure of £2/£3 is not a maximum and greater amounts can be paid without a tax or NICs liability arising as long as the employer is able to provide evidence that such sums have been incurred.
The position with regard to the reimbursement of household expenses to ministers of religion has not changed. See NIM05698 for guidance.