I have a query about end-of-year tax returns, specifically remotely working from home.
The Revenue’s very helpful and clear advice suggests that either an employer can pay up to €3.20 per day (without incurring PAYE/PRSI / USC liabilities) to offset electricity, heat, and broadband costs, or the employee can claim for allowable costs on the basis of 10 per cent of electricity and heat costs, and 30 per cent of broadband costs, pro rata the number of days worked at home.
Revenue then gives an example of someone working remotely for 180 days in the year with electricity and heat costs of €2,494, giving them an allowable cost of €61.30, set against the 40 per cent tax rate, resulting in €24.52 as tax relief. They must also retain all relevant utility bills for six years. This seems like an inordinate amount of work for less than €25.
Also, if their employer had paid the €3.20 per day, for 180 days, I calculate that would have received €576 without incurring any tax liabilities, am I correct in this?
Mr MC, email
You’re right on both counts. That is how it works and it can involve an inordinate amount of work – and everyone should make a point of pressing their employer to operate the far-easier-to-calculate and more beneficial tax-free allowance option.
Covid has focused a lot of minds. Not only are we all sitting at home, worrying about the additional costs we are incurring but many people are also figuring out what to do about tax bills that landed in their Revenue myAccount inboxes in the last month.
It's all been a bit of a wake-up call. Most PAYE workers are used to not having to worry about tax.They will have been getting broadly the same reliefs since they started working and are long accustomed to tax being something their employer has to worry about, not them.
Most generally just about managed to file away their annual P60 in the days before it too migrated online. Perhaps they will get round to applying for a rebate on the basis of medical expenses or college fees though a depressing number don’t bother.
But now there's a tax bill to address, assuming they have even accessed myAccount to find out.
Yes, there is effectively five years to address it – you aren’t expected to start paying off any bill outstanding until next January and it will then be spread over four years – but most of us aren’t used to thinking about budgets in five-year cycles and will be happier to get it done and sorted sooner.
That means sorting out those half-discarded medical receipts and totting up college fees for those with children at that stage of life to see if you exceed the threshold for relief.
And, inevitably, for those of us working from home, it will involve trying to offset at least some of the cost of heat and light as we operate from multi-Zoom theatres in our kitchens and spare bedrooms.
Employer savings
And you’re quite right. It will be so much easier for those whose employers are happy to do the paperwork.
And there’s good reason why they should. It is true that companies continue to have fixed costs for empty workplaces. There’ll be rent to be paid and security. But employers – outside of areas like some retail, hospitality and tourism – have been saving massive sums over the past year, especially those in office-based environments.
It is not beyond the wit of workers and HR departments to come up with a structure that would see such payments made in lieu of a pay rise
Chief among these is electricity. Without people coming into work the need to heat offices or power air-conditioning systems is no longer required. And, if you’re keeping people out of offices, you are certainly saving on cleaning and other facility management costs, including subsidised food for companies offering that type of perk.
These are substantial savings for office-based employers in particular. On top of that, as figures published last week show, about 40,000 Irish businesses got State support to subsidise the wages of staff.
Yes, this means their sales would have been hit by Covid but I have spoken to people, even in the retail environment, who tell me that between lower operating costs and State subsidies, they have fared alright. Yes, these are retailers who can and do trade online, so it is necessarily a subset, but even so.
If you can persuade your employer to pay the €3.20 per working day, you could receive a payment of €736 a year on the basis of a five-day week with four weeks’ holiday and time off for bank holidays. And that’s tax-free, don’t forget.
Assuming you are a higher-rate taxpayer, that equates to earnings of close to €1,100. For most of us, given the general low rate of pay rises – where they exist at all – the benefit of the working from home allowance might well exceed the after-tax benefit of any pay rise this year.
And should they be feeling generous, there is nothing to limit the employer to €3.20 a day, although you will be taxed on anything above that rate as benefit in kind.
It is not beyond the wit of workers and HR departments to come up with a structure that would see such payments made in lieu of a pay rise, with a provision that, should everyone return to the office at some point, it could be converted to a pay rise next year at no additional cost to the employer.
It’s certainly something worth pursuing, both for employers keen to retain and motivate staff at this difficult time and for the workers, who otherwise face a messy and convoluted claims process with Revenue that will yield only a fraction of the benefit.
But like most of these things, if you don’t ask, you have no chance of getting. Put it to your employer and see what they say.
Household bills
The alternative, as you say, is gathering all your household bills for heat and electricity, totting them up and then claiming back a small fraction of them – 10 per cent.
The notion that the additional cost amounts to just 10 per cent of your heat and electricity bills bears no relation to reality. It is simply derisory
As a bonus – don’t laugh – the Minister for Finance extended the relief in his last budget to include 30 per cent of the cost of broadband for every day you work from home.
And worse still, as you note in your question, whatever this measly figure is, you only get 40 per cent of it – assuming you are paying income tax at the higher rate. It’s even worse for those on the 20 per cent tax band.
And no, if there are two of you working from home, you don’t get this relief twice: you have to split those household bills between you.
The figures are ridiculous. With people working from home for eight hours a day (at least), the notion that the additional cost amounts to just 10 per cent of your heat and electricity bills bears no relation to reality. It is simply derisory.
And there is no provision for using your phone, should that be necessary – and no allowance for wear and tear on office machinery or supplies – printer ink, paper etc.
And to add insult to injury, you then have to hold on to those utility bills for six years in case Revenue should want to check that you’ve “ripped them off” for a fraction of €20-€30 over a year.
There is no logic to the chasm in benefit between those in receipt of a tax-free working-from-home allowance from their employer and those trying to claim a pittance from Revenue to cover a fraction of the very substantial extra costs they have incurred to facilitate their employer’s continued operation by working from home during the pandemic.
Eventually, Government and Revenue will cop on but my guess is that this will be years down the line – there won’t be lot of spare exchequer cash when we get out of these lockdowns. In the meantime, you would be a fool not to press the case with your employer.
Bear in mind, €3.20 a day is the upper limit. Even if you got them to contribute €1 a day, it is tax-free and would be well ahead of anything you’ll claim via the Revenue expenses route.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into
