Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
More than a quarter of working adults in Great Britain, 28%, now split their week between home and the workplace, according to the Office for National Statistics [1]. From 6 April 2026, an estimated 300,000 employees lost the right to claim tax relief on unreimbursed homeworking costs, which leaves the employer as the only route to a tax-free working from home allowance [2].
The allowance itself is modest. An employer can pay £6 a week, or £26 a month for staff on a monthly payroll, free of income tax and National Insurance without asking for receipts, provided the employee works at home regularly under an agreed arrangement [3] [9]. The conditions behind that figure, and the separate rules for equipment, broadband and phones, are where most payroll errors arise.
This guide sets out who qualifies, what the allowance can cover, how much can be paid without tax, what happens when a payment goes above the limit, how equipment is treated, and what changed for employees and employers on 6 April 2026. It is written for employers, payroll managers and the accountants who run payroll on their behalf.
Key takeaways
- An employer can pay up to £6 a week or £26 a month tax-free and National Insurance-free to an employee who works at home regularly under homeworking arrangements, without evidence of costs [3] [9].
- Higher payments are exempt only when the employer can show they reflect the employee's actual additional household costs [9].
- Since 6 April 2026 employees can no longer claim tax relief from HMRC on homeworking costs their employer does not reimburse [11].
- Equipment provided mainly for work, such as a laptop or desk, is exempt when private use is insignificant, and a new exemption covers equivalent items the employee buys on the employer's behalf from 6 April 2026 [14] [15].
- Any excess over the exempt amount is earnings, taxed through payroll with Class 1 National Insurance [4].
What the working from home allowance is
The working from home allowance is a payment an employer makes to cover the extra household costs an employee incurs by working at home, such as heating and lighting the work area [7]. It is not a statutory entitlement: no law obliges an employer to pay it, and the employer decides whether to offer it [5]. What the law provides is a tax exemption that applies when the payment meets set conditions.
The legal basis of the exemption
The exemption sits in section 316A of the Income Tax (Earnings and Pensions) Act 2003, which covers payments made by an employer to meet reasonable additional household expenses incurred under homeworking arrangements [28] [6]. HMRC's guidance stresses that the exemption only applies to payments made by the employer, and does not entitle an employee to deduct unreimbursed costs [6].
For National Insurance, the same payments are disregarded as reimbursements of expenses actually incurred in carrying out the employment [13]. The practical result is that a qualifying payment generates no income tax, no employee National Insurance and no employer National Insurance [3] [13].
Allowance, reimbursement and benefit compared
Three different payments are often grouped under the same name, and each follows different rules. The table compares them, using HMRC's homeworking guidance [3] and the Employment Income Manual [14].
| Payment | What it covers | Exemption when conditions are met |
|---|---|---|
| Flat-rate homeworking allowance | Extra household running costs | Exempt up to £6 a week or £26 a month |
| Reimbursement of actual costs | Evidenced extra household costs | Exempt up to the evidenced amount |
| Equipment, supplies and services | Laptop, desk, stationery, software | Exempt if private use is insignificant |
Who qualifies for a tax-free allowance
The exemption depends on two tests set out by HMRC. There must be an arrangement between the employer and the employee, and the employee must work at home regularly under that arrangement [6]. Both tests apply to the employee individually, so an employer can pay the allowance to some staff and not others [6].
Homeworking arrangements
The arrangement need not be in writing, although it usually will be [6]. It must replace work that would otherwise take place on the employer's premises. An employee who simply takes work home in the evenings, without any agreement, is not working under homeworking arrangements and cannot receive the allowance tax-free [6] [5].
Many arrangements start with a flexible working request. All employees have a legal right to request flexible working, including a change to where they work, from their first day in a job [23]. An agreed request, formal or informal, gives the employer a clear record of the homeworking arrangement [22].
Hybrid workers and the regularity test
HMRC accepts that the exemption can apply to hybrid and flexible arrangements [6]. Work at home is regular when it is frequent or follows a pattern. HMRC's own example is an employee who agrees to spend 3 days a week on the employer's premises and 2 days at home, which counts as regular even if the home days vary from week to week [6] [1].
The employer's test is wider than the test that applied to employees claiming relief themselves. Before 6 April 2026, an employee claiming directly from HMRC had to show they were required to work from home, and choosing to do so was not enough [18] [12]. An employer can pay a hybrid worker the allowance tax-free even where the office remains open, as long as the arrangement and the regularity tests are met [6].
How much can be paid without tax
HMRC sets a guideline amount that an employer can pay without justifying it, and allows higher payments where they are backed by evidence [9]. The guideline has changed once in the last decade.
The flat rate and its history
The table shows the weekly and monthly limits that apply without evidence, as published in HMRC's employer guidance [3].
| Tax years | Weekly limit | Monthly limit |
|---|---|---|
| 2012-13 to 2019-20 | £4 | £18 |
| 2020-21 onwards | £6 | £26 |
If the employer pays the guideline rate, the employee does not need to keep any records of the additional expenditure [9]. HMRC expects £6 a week to be sufficient in most cases, particularly where the extra costs are only for heating and lighting the work area [9].
Paying more than the flat rate
The £6 figure is not a maximum [9] [13]. An employer can pay more in one of two ways: by agreeing a scale rate with HMRC in advance, calculated to reimburse the average additional costs of its homeworkers, or by reimbursing each employee's actual additional costs and keeping records of how the payments were worked out [9].
HMRC's worked example shows how an evidenced payment is built up for an employee working 40 hours a week at home. The table reproduces it [10].
| Cost | Basis | Annual amount |
|---|---|---|
| Electricity and gas | £15 a quarter for 4 quarters | £60.00 |
| Business rates | Net increase over council tax | £100.00 |
| Business telephone calls | 12 a day at 2p for 240 working days | £57.60 |
| Total, rounded up | £218 |
In that example the full £218 qualifies for the exemption, because each element is a reasonable additional cost supported by evidence [10] [7].
What household costs the allowance can cover
Only additional costs qualify. The question is always whether the cost rises because the employee works at home, not whether the cost exists at all [7].
Costs that qualify and costs that do not
The table sets out the main categories, drawn from HMRC's guidance on what can be reimbursed [7].
| Qualifying additional costs | Costs that never qualify |
|---|---|
| Heating and lighting the work area | Mortgage interest or rent |
| Metered cost of extra water use | Council tax and water rates |
| Increased home contents insurance | Building alterations |
| Business telephone calls | Furniture or office equipment bought to set up |
| Business rates triggered by homeworking | Costs that would arise anyway |
Furniture and equipment are excluded from the household expenses exemption because they put the employee in a position to work, rather than being a cost of working [7]. They fall under a separate set of rules, covered below [14].
Broadband
Broadband is the most common grey area. If an employee already pays for a broadband connection before starting to work from home, there is no additional expense, and any payment the employer makes towards it is subject to PAYE and National Insurance [8]. If the employee has no connection and needs one to work from home, the employer can reimburse the fee tax-free, provided it is mainly used for business [8] [3].
An employee who qualifies on that basis keeps the entitlement when moving from one homeworking job to another [8]. Payroll teams therefore need to record, at the start of the arrangement, whether broadband was already in place.
Equipment, supplies and phones
Equipment provided to homeworkers is a benefit question rather than an allowance question, and it has its own exemptions [14]. The wider rules on taxable perks are covered in the guide to benefit in kind tax.
Items the employer provides
There is no tax charge on supplies and services provided away from the employer's premises when they are provided solely to enable the employee to do the job and any private use is not significant [14]. HMRC lists office furniture, equipment and stationery among the items the exemption can cover [14]. Laptops, tablets and computers fall within the same rule [3].
"Not significant" is not defined in statute. HMRC accepts it where the employer's policy on private use is clearly stated to employees, for example in the contract or a signed acknowledgement, and the employee follows it [17]. Certain items can never benefit from the exemption: motor vehicles, boats, aircraft and the alteration or extension of living accommodation [16].
Items the employee buys on the employer's behalf
From 6 April 2026, a parallel exemption in section 316ZA applies when the employee incurs the cost on behalf of the employer and the employer pays or reimburses it [15]. The employer must intend, when the item is first provided, that it will be used for the job and that private use will not be significant [15] [17].
For items used away from the employer's premises, the sole-purpose test and the excluded benefit list also apply [15] [16]. The change brings reimbursed purchases into line with items bought directly by the employer, which simplifies the treatment of a monitor or chair that a homeworker orders and claims back.
Mobile phones
One mobile phone or SIM card per employee is exempt, with no reporting and no tax or National Insurance, as long as the contract is between the employer and the supplier [19]. Further phones count as assets, and phones provided through salary sacrifice must be reported [19] [31]. There is no need to restrict private use on the single exempt phone [3].
Paying above the limit: tax and National Insurance
When an employer pays more than the flat rate and cannot show that the payment matches the employee's additional household costs, the excess counts as earnings [4]. The employer adds it to the employee's other pay and deducts PAYE tax and Class 1 National Insurance through payroll [4] [26].
Working out the taxable excess
Without supporting evidence, the taxable amount is the total paid minus the £6 a week limit [4]. With evidence, it is any amount above the evidenced additional expenses [4] [9]. An employer paying £10 a week with no evidence therefore puts £4 a week through payroll as taxable pay.
Worked example: exempt allowance or taxable pay
The difference between a qualifying allowance and the same amount paid as salary shows what the exemption is worth. The figures below come from the Moonworkers calculator engine for an employee in England on tax code 1257L, category A, paid monthly in the 2026-27 tax year, using the rates and thresholds published by HMRC [26] [27].
| Monthly salary | Gross pay including taxable £26 | Income tax | Employee NI | Employer NI | Net pay |
|---|---|---|---|---|---|
| £2,500 | £2,500 | £290.20 | £116.16 | £312.45 | £2,093.64 |
| £2,500 | £2,526 | £295.40 | £118.24 | £316.35 | £2,112.36 |
| £4,500 | £4,500 | £752.06 | £257.50 | £612.45 | £3,490.44 |
| £4,500 | £4,526 | £762.46 | £258.02 | £616.35 | £3,505.52 |
For the employee on £2,500 a month, £26 paid as salary adds £5.20 of income tax and £2.08 of employee National Insurance, so net pay rises by only £18.72. For the employee on £4,500 a month, the same £26 adds £10.40 of income tax and £0.52 of employee National Insurance, because earnings above the upper earnings limit attract employee National Insurance at 2% [26], and net pay rises by £15.08. In both cases the employer also pays an extra £3.90 of employer National Insurance at 15% [26].
Paid as a qualifying allowance instead, the full £26 reaches the employee and the employer pays no National Insurance on it [3] [13]. Most HMRC-recognised payroll software for SMEs holds the allowance as a separate non-taxable pay element, so it never enters the tax and National Insurance calculation by mistake.
The 6 April 2026 change for employees
Until 5 April 2026, an employee required to work from home whose employer paid nothing could claim tax relief directly from HMRC, usually on the flat £6 a week [12] [18]. That route has now closed.
What was removed
A new section 360B of the Income Tax (Earnings and Pensions) Act 2003 prevents any deduction from earnings for additional household expenses from 6 April 2026 [11] [2]. HMRC's policy paper explains that, after checking claims, over half were found to be ineligible, and estimates the removal costs a basic rate taxpayer £62 a year and a higher rate taxpayer £124 [2].
Claims for earlier tax years remain possible. HMRC still accepts claims for the 4 previous tax years, with evidence that the employee had to work from home [18] [12].
What did not change
The employer exemption under section 316A is untouched [11] [2]. Relief for travel from home to another workplace under section 337 is also unaffected [11]. Business mileage paid at HMRC's approved rates remains a separate question, covered in the guide to HMRC mileage rates.
The table summarises the position before and after the change, using HMRC's guidance on each route [11] [18].
| Route | Up to 5 April 2026 | From 6 April 2026 |
|---|---|---|
| Employer pays a qualifying allowance | Tax and NI free | Tax and NI free |
| Employee claims relief from HMRC | Available if required to work at home | Not available |
| Employer reimburses equipment bought by the employee | Taxable unless otherwise exempt | Exempt under section 316ZA if conditions met |
For employees who previously relied on their own claim, the employer allowance is now the only way to receive the same help tax-free [2].
Reporting the allowance through payroll
Exempt homeworking payments do not need to be reported to HMRC [3] [24]. What needs reporting depends on how a non-exempt cost arises.
Non-exempt payments and benefits
The table sets out where each type of non-exempt homeworking cost is reported, based on HMRC's reporting guidance [4].
| Non-exempt item | Where it is reported | National Insurance |
|---|---|---|
| Cash allowance above the exempt amount | Through payroll as earnings | Class 1 |
| Equipment with significant private use | P11D or payrolled benefit | Class 1A |
| Irregular or minor items | PAYE Settlement Agreement | Class 1B |
Equipment provided for both business and private use goes on form P11D with Class 1A National Insurance on its value, unless the employer payrolls the benefit [4] [25]. Minor or irregular items can instead be covered by a PAYE Settlement Agreement, where the employer makes one annual payment and pays Class 1B National Insurance [20]. The P11D form guide explains each section of the return, and small one-off gifts to homeworkers may fall under the separate trivial benefits exemption.
Payroll set-up and records
A clean set-up records the start date of each homeworking arrangement, the agreed pattern, the payment frequency and whether the flat rate or an evidenced amount applies [6] [9]. Payroll teams should match the £26 monthly figure to monthly paid staff and the £6 weekly figure to weekly paid staff, because the two are not interchangeable over a year [3].
Reporting rules for benefits are also moving. Cars, fuel, vans and medical benefits must be payrolled from 6 April 2027, with most other benefits following from 6 April 2028 [30] [29]. The guide to mandatory payrolling of benefits sets out the timetable. Accountants handling homeworking policies across several clients often use a payroll bureau platform to hold a single allowance rule per client and apply it consistently.
Beyond tax: the employer's wider duties to homeworkers
The allowance is only one part of managing homeworkers. Employers have the same health and safety responsibilities for people working at home as for any other worker, including those who split their time between home and the workplace [21].
Risk assessment and equipment
The Health and Safety Executive expects the risk assessment for homeworkers to consider stress and mental health, the safe use of computers and laptops, and the working environment [21]. Acas notes that an employer considering a request to work from home may need to carry out a risk assessment to check that the home is a suitable and safe place to work [22]. Equipment supplied as a result of that assessment can fall within the tax exemption for items provided mainly for work [14].
Embedding homeworking rules in a platform
HR and workforce platforms that manage hybrid patterns can pass the arrangement data straight to the payroll calculation. An HMRC-recognised payroll API can receive the allowance as a non-taxable element alongside salary, so the exempt amount and any taxable excess are separated before the Full Payment Submission is built [4] [24].
Check the cost of a taxable allowance
Before deciding whether to pay an allowance as salary or as an exempt payment, an employer can test the effect on take-home pay and employer National Insurance with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary.
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S = Scotland · C = Wales · W1/M1 = non-cumulative
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About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
The working from home allowance is small in cash terms but sits on a precise set of conditions: an agreed arrangement, regular homeworking, and a payment that either stays within £6 a week or is backed by evidence of additional costs [9]. Equipment, broadband and phones each follow separate exemptions, and the worked example shows that the same £26 paid as salary lifts net pay by only £18.72 or £15.08 once tax and employee National Insurance are deducted.
The removal of employees' own relief from 6 April 2026 shifts the decision entirely to the employer. With hybrid working now established and benefit reporting moving into real time, employers that define the allowance once in their payroll rules, rather than handling it as an occasional expense, will keep it both tax-free and auditable.
Frequently asked questions
Is the £6 a week working from home allowance paid automatically?
No. The allowance is a payment the employer chooses to make, not a statutory entitlement, and HMRC does not pay it [5]. Since 6 April 2026 an employee whose employer pays nothing can no longer claim tax relief on homeworking costs from HMRC for the current tax year [18].
Can an employer pay the working from home allowance to hybrid workers?
Yes, if there is an arrangement with the employer and the employee works at home regularly under it. HMRC accepts a pattern such as 3 days in the office and 2 at home as regular, even if the home days change from week to week [6]. An employee who only takes work home informally does not qualify, and the payment must stay within the exempt amount or be backed by evidence [3].
Can an employer pay more than £26 a month tax-free?
Yes, but only with evidence. The employer can agree a scale rate with HMRC based on the average additional costs of its homeworkers, or reimburse each employee's actual additional costs and keep records of the calculation [9]. Any amount above the evidenced costs is taxable pay [4].
Is reimbursing an employee's broadband bill tax-free?
Only when the employee had no broadband before working from home and needs a connection to do so. If the connection already existed, there is no additional cost and the payment is subject to PAYE and National Insurance [8]. The connection must also be used mainly for business [3].
