How to beat the chill with your tax bill?

As the new working year begins for many under a blanket of snow, some parents may have hoped for an easier start as they try to navigate working from home with children on a ‘snow day’ running amok in the background. A further concern may also be the impact the weather will have on their heating and energy bills, particularly following the 1.2% energy price cap increase on 1 January 2025. We look at how tax reliefs and incentives could bring down home energy bills.

Working from home

If an employee’s workplace is their home, they may be able to claim a tax deduction for some of their home energy costs against their employment income. The amount that can be claimed against earnings is either a flat £6 a week or the exact amount that has been spent. For those claiming the flat relief of £6 a week, this could lead to an annual tax saving of £62.40 for a basic rate taxpayer or £124.80 for a higher rate taxpayer.

It’s important to note that HMRC does not consider that a typical hybrid-working employee is entitled to make such a claim, as there is an office they can work from instead. Those whose normal place of work is their home may still be entitled. However, they should check whether their own circumstances are in line with HMRC’s guidance as it takes quite a narrow view of who can qualify, which may come as a surprise to some home workers.

Home improvements

Until April 2027, a 0% rate of VAT applies to the installation of certain energy-saving materials in your home. After this date, the rate of VAT on these goods is set to revert to 5%, unless the government chooses to extend the deadline in the meantime. The 0% rate can apply to installations of various home improvements including insulation, smart controls for radiators, heat pumps and solar panels. For those looking to install solar panels, in many cases, any excess electricity sold back to the grid is tax-free under the Smart Export Guarantee scheme. 

Electric vehicles

Whilst they may not be quite as generous as they were a few years ago, there remain various tax incentives to encourage taxpayers to purchase an electric vehicle. In particular, when an employer provides an employee with the benefit of an electric car, the benefit-in-kind (BIK) rate is currently only 2% (rising to 3% from 2025-26). By comparison, the BIK rate on a petrol or diesel car can be as high as 37%.

If the potential tax savings on electric vehicles are not enough of an incentive on their own, some may be swayed by the wider impact an electric car may have on fuel and household energy costs. Many energy providers offer preferential tariffs to households with an electric vehicle, including lower rates on electricity used overnight. This in turn can provide energy and fuel savings if the car is charged overnight and may lead to changes to other household habits, such as when to use the tumble dryer. It is also anticipated that in the future, more electric cars may be able to be used as a battery for the home, meaning they could be charged with cheap electricity overnight which can then be used to power the home during the day.

With one of the government’s main focuses being to reduce the UK’s carbon footprint further, we might see additional tax incentives and grants introduced over the next few years with the result of ultimately lowering household energy bills.