Resulting from the Covid19 pandemic many employees have been and will continue to work from home. There are a range of tax issues which we consider in the below blog.
Home as an office
Normally an employee can only classify their home as what is defined “a permanent workplace” where it is an objective requirement for the employee to work from home and where substantive tasks are performed from home (“ordinary” expected to be around 80% of their core duties of employment).
If this level is met, then additional household costs in working from home (e.g. utilities) can potentially be claimed as a deduction by the employee via Self-Assessment. However, the costs reimbursed would need to be supported by calculations demonstrating the additional costs incurred. This will require looking at the area of workspace in relation to total area space of the home, and applying that percentage to the cost incurred. If the above bills are reimbursed by an employer, then where the costs are considered to meet the above tests and can be demonstrated with robust documentation, costs would again not be taxable.
Home working allowances
Otherwise, where employees work from home as part of a home working policy, an employer can pay an allowance of up to £6 per week (£26 per month) from 6 April 2020 for which no receipt is necessary, where the following two tests are met:
- There must be arrangements between the employer and the employee for the employee to work at home instead of working on the employer’s premises
- The employee must work at home regularly under those arrangements.
The arrangements don’t need to be in writing, but it is recommended to do so. Also, they do not need to apply to all employees. The exemption does not apply where an employee works at home informally and not by arrangement with the employer. For instance, it will not apply where an employee simply takes work home in the evenings, or where an employee works from home on a particular day.
During lockdown, as employers may require their employees to work from home for a limited or even indefinite period of time as a result of a temporary closure of the business premises, then HMRC accepts that for the duration of that period these two tests would be met.
There is nothing in the underlying legislation that requires homeworking arrangements to be in place for a particular span of time. If not already working under homeworking arrangements, HMRC would agree that employees would be covered by the exemption when either the employer agreed they could work from home or from when Government advice was announced.
HMRC has confirmed that employees may claim tax relief to the same value directly from HMRC whilst the current situation continues (see here). As a broad simplification, once a claim is made from a start date in the 2020/21 tax year, HMRC will apply the relief for the whole year, even if the employee then returns to the office before 5 April 2021.
Home-working equipment purchased by employees
Ordinarily, where any equipment is purchased by employees and the cost is reimbursed by the employer, the reimbursement would not qualify for the above exemption. In May 2020, HMRC announced the launch of a temporary tax and NIC exemption that will cover any home office equipment purchased by employees and reimbursed by employers because of the pandemic. This measure is relevant from 16th March 2020, and will continue until the end of the 2020/21 tax year.
To be eligible for this temporary exemption, the reimbursed expenditure must meet two conditions:
- The equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and
- The provision of the equipment would have been exempt from income tax under the existing exemption had it been provided directly to the employee, as set out above.
Under this interim exemption, a taxable benefit will not arise if the equipment is retained by the employee rather than being given to their employer.
