There’s no place like home

There’s no place like home, mainly because we haven’t been allowed anywhere else for the last 8 weeks.

With lockdown in place and the easing of measures looking like a slow process, working from home has become normality for many within the UK. In April 2020, the UK’s Office for National Statistics showed 49.2% of adults in employment were working from home as a result of social distancing measures.

With the sharp rise in home working, what tax reliefs are available for employers and employees while working from home?

Regardless of when we come fully out of lockdown, I believe working from home will become normality for many employees, even if only on a part-time basis. It has made both employers and employees take stock of whether you need to be sat at your desk in an office every day, or whether this can be eased by working from home, cutting out the rush hour commutes and utilising technology and video calls. We have a great IT team here at BHP and they have revolutionised the way we work in the short time we have been working from home.

Clearly, while working from home, employees may incur additional costs on household bills and equipment. This blog considers the tax treatment on whether costs are reimbursed or ultimately incurred by the employee.

Employer Reimbursing Employee Costs

Since 2003, employers have been able to make tax-free reimbursements to cover additional expenses incurred while working from home. Eligible payments are not subject to either income tax or national insurance.

Which employees are eligible?

Employees are eligible where duties of their employment are carried out under homeworking arrangements. This means that the employee is regularly performing some or all of their duties at home.

During the COVID-19 pandemic, HMRC will accept that employees working from home because their employer’s office has closed or because the employee is following advice to self-isolate are eligible.

What costs can the payments cover?

The reimbursements can only cover reasonable additional costs incurred from working at home by the employee.

There are two options:

Option 1 – Fixed amounts gives the advantage of no evidence being required:

  • £6/week for weekly paid employees (£4/week prior to 6 April 2020); or
  • £26/month for monthly paid employees (£18/month prior to 6 April 2020)

Option 2 – Scale rate or Actual

Payment above the set limits above must be evidenced by the employee. There are two ways to do this.

The first approach is to calculate scale rate payments which are agreed with HMRC, although the Association of Taxation Technicians (ATT) do not expect HMRC to have the resources to agree scale-rates during the COVID-19 outbreak.

Alternatively, the actual additional costs incurred by the employee can be reimbursed which include:

  • additional heating and lighting costs
  • additional insurance
  • metered water
  • telephone or internet access charges
  • business rates (if applicable)

Only the increase in costs incurred by the employee can be reimbursed so fixed costs can’t be reimbursed such as:

  • mortgage interest or rent
  • council tax
  • water rates

Other costs such as connecting up broadband and landlines can only be reimbursed if the connection is only completed for the purpose of working from home.

Reimbursement of building alterations to work from home are not tax free although, an employer can provide office equipment and office furniture as tax-free benefits in kind.

Employee Tax Relief

Where an employer does not reimburse an employee’s extra expenses, tax relief for an employee is only given where incurred wholly, exclusively and necessarily for the employee’s work.

Which employees are eligible?

Employee’s must show that their home is a workplace, meaning that substantive duties are carried out at home and that appropriate facilities are not available at the employer’s premises.

The homeworking duties must also require the use of appropriate facilities and such facilities are not available to the employee at the employer’s premises or practically, the employee lives too far away.

What costs can the payments cover?

Where an employee can show that their home is a workplace, tax relief can be claimed for expenses which are set at the same amount as those that can be reimbursed by their employer above.

This does not cover the cost of business calls, for which an additional claim can be made based on actual costs.

How to make a claim?

An employee can make a claim online, by phone, by post or, if they are registered for self-assessment, through their tax return.

Purchases of Office Equipment

Some employees who are new to working at home will need additional equipment such as monitors, keyboards and even desks and chairs in order to make a functional office space at home. Fortunately, following an announcement on 13 May 2020, some of the unintended outcomes which could arise here have been dealt with by the Government.

Employer purchase

If the employer has purchased and provided any necessary equipment then, provided there is no significant private use, no taxable benefit in kind arises on the employee.

If there is significant private use, then a benefit in kind will arise and so employers may wish to ensure that their employment policies make clear private use is not permitted.

Employee purchase and employer reimburses

Where employees purchase equipment and ask for reimbursement, this can be treated differently for tax purposes and is normally taxable on the employee. However, on 13 May 2020 a temporary exemption from income tax and national insurance was announced for such reimbursements and is very welcome in the current climate.

As always, this situation remains fluid and there may be changes/additions to the current reliefs, so watch this space. If you have any questions speak to BHP.