Covid-19 has seen an upsurge in homeworking. For many people, the follow-up question is the tax on the paraphernalia involved.
What if I contribute to employee costs?
You can look to reimburse some specified costs incurred by employees when working from home without income tax or National Insurance consequences, by making a nominal fixed payment, or a larger contribution.
- nominal payment: you can pay £6 per week: or £26 per month to employees paid monthly (£4 and £18 respectively, before 6 April 2020) in recognition of costs like additional heat, light, or increased metered water. This is the simplest route to take. You don't have to justify the expenditure and your employee doesn't have to keep records.
To qualify, payment must be in respect of reasonable additional household expenses incurred by the employee carrying out the duties of their employment at home. It must also be in the context of a formal homeworking arrangement. This is defined as an employer-employee arrangement that some or all of their duties will regularly be performed at home.
HMRC confirmed that employees working from home because the workplace had closed, or following advice to self isolate, were covered by the rules on homeworking expenses, and the requirement for 'regular' homeworking should therefore be met in these circumstances.
- larger contribution: you can potentially reimburse more than £6/£26, though this will involve providing analysis of costs and is more cumbersome. We are happy to advise in detail on the best approach in your circumstances.
Can employees claim tax relief themselves?
Yes: employees looking to recoup costs have a potential alternative route to employer reimbursement: claiming tax relief themselves. The easiest way to do it is to claim relief of £6 per week/£26 per month for those paid monthly (£4 or £18 before 6 April 2020). As with the employer method, this doesn't need records. Note though, that relief for making business phone calls can be claimed separately, and this does mean recording costs involved. Employees can claim online, by phone or post, or via their self assessment tax return, if they usually file one. They can be directed here for further help https://bit.ly/3dsVvb4.
But: gateway criteria for employee claims are normally very strict, and it doesn't usually follow that where an employer doesn't reimburse, an employee can get tax relief by default. And while it's likely HMRC will accept that its usual tests are met where someone is working at home because of Covid-19, it has yet to confirm some aspects of the position. It may be worth flagging this up to employees, for example if there is a degree of choice over homeworking as we move out of lockdown.
Do normal rules on taxable benefits and expenses still apply during Covid-19?
Broadly, yes. In most cases, it's (tax) business as usual. So, for example, you can provide one mobile phone and SIM card per employee, with no restriction on private use, and it doesn't count as a taxable benefit. Or you can provide an asset, like a computer for work at home and it will usually be exempt from tax, provided the arrangement fits three conditions:
- it's provided solely to enable the employee to perform the duties of the employment
- any private use is not significant, and
- it isn't an 'excluded' benefit – such as a car.
Where employees are paid travel and subsistence expenses to get to a temporary workplace, and furlough or home working interrupts this, the usual time clock still runs. So for tax purposes, a 'temporary' workplace won't qualify as temporary after 24 months, and the 24 months includes time furloughed or homeworking. For HMRC guidance, covering areas like volunteer fuel and mileage costs, and paying or refunding transport costs, see https://bit.ly/3hU65v7 and https://bit.ly/3fTea1s.
Are there any new Covid-19 rules?
Yes. They cover the position where you reimburse an employee who has bought home office equipment: table, chair or monitor, for example. Normally, reimbursement after an employee purchases would be taxable. But from 16 March 2020 to 5 April 2021, a temporary exemption from income tax and National Insurance exists, so long as:
- equipment is obtained solely to enable the employee to work from home because of the pandemic
- it would have been exempt from income tax if provided directly to your employee, either by you or on your behalf
- such arrangements are available to all your employees generally on similar terms.
Care will be needed regarding current and future ownership of the equipment. We are happy to advise further.
What about employer provided cars?
With cars going nowhere during lockdown, this may seem counter sense: but usual rules on company cars mostly still apply, for furloughed employees, and those working at home because of Covid-19. The car is still treated as 'available for private use' for tax purposes. That's even if you have told employees not to use it; asked someone to take and keep a photographic image of mileage, both before and after a period of furlough; or employees are unable physically to return it and it can't be collected from them.
HMRC will accept a car is unavailable in limited circumstances, applying only where Covid-19 restrictions on movement prevent its being returned to the employer, or collected. Thus, where the contract is terminated, it will be unavailable from the date car keys are returned; or where the contract has not been terminated, after 30 days from the date keys are returned.