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Working from home: what are my tax obligations as an employer?

As we adjust to a more socially distanced post-lockdown world, figures indicate that many UK businesses – having seen the benefits of flexible, remote working – are now opting to ditch the office building and make home set-ups a more permanent arrangement.

But the upsurge in homeworking brings certain tax obligations that employers need to be aware of, as Clayton and Brewill explains.

What should 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.

1. Nominal payment

Arguably the simplest route to take is to pay £6 per week, or £26 per month, to employees paid on a monthly basis (£4 and £18 respectively, before 6 April 2020). This is in recognition of costs like additional heat, light, or increased water usage. 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. The requirement for ‘regular’ homeworking should, therefore, be met in these circumstances.

2. Larger contribution

You can potentially reimburse more than £6/£26, though this will involve providing analysis of costs and is more cumbersome. Situations will vary from employer to employer; Clayton & Brewill are happy to advise on the best approach in your circumstances, so please do get in touch.

Can employees claim tax relief themselves?

Employees looking to recoup costs have a potential alternative route to employer reimbursement: claiming tax relief themselves. The easiest way to do it is for employees to claim the relief of £6 per week/£26 per month themselves. As with the employer method, this doesn’t need records; but note 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. Further guidance can be found here.

However, it’s important to note that gateway criteria for employee claims is typically very strict. It doesn’t usually follow that an employee can get tax relief by default where an employer doesn’t reimburse them. 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; for example, if there is a degree of choice over homeworking as we move out of lockdown. It may be worth flagging this up to employees.

Do normal rules on taxable benefits and expenses still apply during COVID-19?

Broadly speaking, 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 conducted at home, and it will usually be exempt from tax. This is provided the arrangement fits three conditions:

• it’s offered 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. The 24 months includes time furloughed or homeworking. HMRC’s guidance on which expenses are taxable if your employee works from home due to coronavirus can be found here.

Are there any new COVID-19 rules?

New rules have been introduced to 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 purchase would be taxable. But from 16 March 2020 to 5 April 2021, a temporary exemption from income tax and National Insurance exists. This is 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. Situations will vary depending on your business, so please get in touch with the Clayton & Brewill team for further advice.

For advice or help with any aspect of personal or company taxation, please send us an enquiry, or call the Clayton & Brewill office on 0115 950 3044.