HMRC previously issued guidance covering the tax treatment and reporting of expenses for employees who are working from home during the current COVID-19 situation. It can be found here and builds on their existing home working expenses guidance.
As the position regarding working from home does not appear to be changing any time soon, we’d like to remind our clients of the allowances available to support you and your employees through this period.
PROVISION OF EQUIPMENT
Provision of a mobile phone for an employee’s use is tax free and this can include private use.
Provision of other equipment such as laptops and office supplies are also tax free, but for these there must be no significant private use.
As regards extra expenses which employees may incur due to being temporarily home based, the most common are as follows.
If the employee already has a contract, then the broadband fee cannot be claimed tax free (and will be taxable if it is). If, however, the employee did not have broadband and needs a contract just for work use (with no significant private usage) the fee can be reimbursed tax free.
Home expenses such as heat, light, phone calls and broadband usage charges
A flat rate of £6 per week or £26 per month can be paid tax free to cover the increased costs of these items due to home working (the rate was £4 per week or £18 per month prior to 6 April). This tax relief of £6 week equates to a gain of £1.20 a week for a basic 20% rate taxpayer and £2.40 a week for a higher 40% rate taxpayer.
This expense can be paid to the employee without the submission of any records. Higher amounts can be claimed by agreement but must be supported by receipts or other evidence. In practice, most people find the flat rate allowance sufficient to cover these costs.
If employers choose not to make this £6 per week payment, the employee can make a claim for the additional tax allowance of the same amount. HMRC recently (October 2020) changed its systems so that employees only need to claim once to automatically claim for ALL of this tax year.
We understand that this is just for the current tax year, but HMRC have confirmed that employees can still claim the full £6 allowance for the entire 2020/21 tax year, as long as they are required to work at home and have additional expenses, even if…
– They are only working from home part-time
– Others are going into work
– Employees are only needed to work at home, say, one day in five and were in the office the rest of the week
To process these claims, employees can access the new dedicated working from home online service that will automatically apply the whole 2020/21 tax year’s relief via their tax code.
It was formerly the case that if the employee had bought office equipment (such as printers) in order to be able to work at home, that reimbursement was taxable and this was dealt with via a PAYE settlement agreement. However, a temporary exemption to this has been introduced taking effect from 16 March 2020 through to 5 April 2021.
To qualify for the exemption, the office equipment must have been purchased for the “sole purpose of enabling the employee to work from home as a result of coronavirus” and the provision of such equipment would have been tax exempt if it had been provided directly to the employee (so is subject to the provision that private use is not significant). This could include: computer equipment, office furniture or internet access, for example.
Employers can reimburse home working employees who incur additional expenses to the above. Items which fall under this can include:
– the additional unit costs of gas and electricity consumed while a room is being used for work
– the metered cost of water used “in the performance of the duties” (if any)
– the unit costs of business telephone calls (including “dial up” internet access)
– additional insurance if needed
These costs are claimed on a ‘just and reasonable’ basis, the most common being the number of rooms used for the business activities.
OTHER KEY POINTS
If not already in place, it is advisable for employers to put a home working agreement or policy in place which sets out what home working arrangements will be in place, what equipment and supplies will be provided and what expenses will be met. The policy should also set out restrictions or limitations on private use of equipment provided as this can be valuable in supporting their tax-free status.
For items which are taxable, HMRC’s guidance sets out that these should be dealt with via PAYE settlement agreement if the employer wishes to bear the tax.
As mentioned earlier in this blog, for employees who are working from home but not having expenses reimbursed by their employer, claim can be made for tax relief on the £6 flat rate per week (or more with appropriate evidence). This can be done via HMRC’s online service, self-assessment tax returns, via personal tax accounts or by calling HMRC to ask for tax codes to be amended.
As an employee, you can’t claim for costs which remain unchanged i.e. mortgage, council tax (unless specifically you have to pay business rates).
Finally, there are different rules for self-employed people who work from home in that they are somewhat more generous (please click here to view the Government’s guidance).
For further advice, please don’t hesitate to contact a member of the PM+M team (01254 679131 / firstname.lastname@example.org) or the team member you usually work with.
This information is correct as of 15 October 2020. This blog is for general guidance only. Recipients should not act upon any of the information provided without seeking specific professional advice tailored to your circumstances, requirements or needs. Please contact PM+M before making any decisions based on any matters relating to this blog.