In theory such payments are taxable, and they will have to be declared. In practice HM Revenue and Customs may allow a local dispensation, of up to £300 a year, on expenses incurred for work and related purposes, including heating, lighting, the metered costs of increased water usage, increases in the cost of home contents insurance, business telephone calls, etc. The expenses must be 'reasonable', and may not include the costs of alterations to the premises, or purchase of furniture.
If you do not make such payments, the worker can claim the cost against his (or her) tax liability, though this means less than full recovery. They can also claim for setting aside one room for working at home. This may give rise to a capital gains tax liability, but in many cases this can be offset by the annual CGT exemption
