Finance Bill 2025-26 briefing: Disallowing deduction from earnings for additional household expenses

Clause 21 of the Finance Bill removes the ability for employees to claim a deduction from earnings for working from home expenses, where they are required to work from home but do not receive reimbursement from their employer. This will deny those employees income tax relief on their homeworking expenses. At the same time, payments made by employers to employees to reimburse the same expenses will continue to be tax and NIC free.

Under the current rules, employees can claim tax relief either actual expenses with evidence or a flat rate of £6 per week. For a basic rate taxpayer, this provides modest but meaningful support—around £62 per year.

LITRG argues that abolishing this deduction will create unfairness by treating employees differently based solely on whether their employer reimburses them. Lower‑paid workers are disproportionately affected: they are less likely to receive reimbursement - they have less bargaining power, and/or may work for employers unable to fund such expenses. These workers also have the least capacity to absorb rising household bills. The change may additionally impact Universal Credit claimants, as deductible expenses can reduce assessable income.

We are of the view that the relief should remain, with changes being made to ensure it is easier for people to understand and for HMRC to administer.