In this excerpt from the report ‘COVID-19 Tax Issues For Businesses’, Sarah Bradford gives some advice for employers and employees in this current situation.
Employees Working From Home
To help contain the spread of Coronavirus, employees were required to work from home where they could. As a result, large numbers of employees found themselves working from home for the first time, often at very short notice.
Most employees who do not normally work from home needed to be set up with equipment and supplies to enable them to work from home. Typically, this may include a computer and maybe a printer, stationery and perhaps a desk and office chair. This may be provided by the employer, or the employee may source and pay for the equipment, potentially claiming a reimbursement from the employer. The way in which equipment and supplies are made available to homeworking employees impacts on the tax position, and it is important that the associated tax implications are understood. Some of the rules were relaxed during the Covid-19 pandemic to provide a more level playing field.
Employees may incur additional household expenses as a result of working from home. The employer may provide an allowance to cover these. Where no allowance is forthcoming, the employee may be able to claim tax relief.
Equipment and Office Supplies
The way in which equipment and office supplies are made available to an employee determines the tax position.
Employer Provides Equipment and Supplies
A tax exemption is available where an employer provides equipment and supplies to enable an employee to work from home. The exemption covers the provision of items such as office furniture, stationery, office or workshop materials and computer equipment. Home telephone lines may also be covered if there is a clear business need for the employer to provide it.
To qualify for the exemption, certain conditions must be met:
- any private use of the equipment or supplies must not be significant;
- the sole purpose of the provision must be to enable the employee to perform the duties of their employment; and
- the provision does not comprise an excluded benefit (such as a car or the alteration of the living accommodation, for example to create a home office).
As long as the employer provides the equipment or office supplies directly to the employee and the above conditions are met, no tax liability arises, and there is nothing to report to HMRC.
Employee Provides Equipment etc. And Is Reimbursed By The Employer
Normally, while reimbursement of revenue items may fall within the exemption for paid and reimbursed expenses if the expense would be deductible if met by the employee (as would be the case if it was incurred wholly, exclusively and necessarily in the performance of the duties of the employment) reimbursement of capital expenditure, such as computers and furniture would trigger a tax liability.
However, the position has been relaxed temporarily where the employee is working from home due to Coronavirus, enabling tax-free reimbursements to be made where the employee purchases equipment so that they can work from home and reclaims the cost from the employer. As a result of the relaxation, a temporary tax exemption and National Insurance disregard applies to the expenditure reimbursed by the employer where:
- 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 if the employer had provided it directly.
The relaxation is available where reimbursement is made on or after 16 March 2020 and before the end of the 2020/21 tax year.
HMRC advise that employees should discuss equipment purchases in advance with employers.
The relaxation does not apply where the employee works from home other than as a result of Coronavirus.
Employee Meets The Cost of Homeworking Equipment And Supplies
In the situation where an employee meets the cost of the equipment and supplies that they need to work from home without reimbursement from the employer, the general rules would enable the employee to claim a tax deduction for any expenses that were revenue and nature and which were incurred wholly exclusively and necessarily in the performance of the duties of their employment. However, they would not be able to claim a tax deduction in respect of capital items, such as computers and office furniture.
However, this rule is relaxed where the employee is working at home due to Coronavirus and a deduction can be claimed for capital items, either via the employee’s self-assessment tax return or on form P87.
The employee should claim for the exact amount that they spent on homeworking equipment and supplies and keep receipts to support the amount claimed.
Additional Homeworking Expenses
As a result of working from home, an employee’s household bills may increase as they use more electricity and gas, and possibly incur additional broadband costs.
Where an employee works from home, the tax rules permit the employer to pay a tax-free flat rate allowance to the employee to cover the additional household costs attributable to working from home. The allowance is set at £6 per week (£24 per month) for 2020/21. Prior to 6 April 2020, the amount that could be paid tax-free without supporting evidence was £4 per week.
Where the actual additional household costs of working from home are more than £6 per week, the employer can reimburse the actual additional costs tax-free, as long as the employee an provide evidence to support the actual costs.
If the employer does not pay an allowance, the normal rule is that an employee can claim a tax deduction for revenue expenses incurred wholly, exclusively and necessarily in the performance of their duties. However, in light of the requirement for employees to work at home where possible to limit the spread of Coronavirus, HMRC have confirmed that employees can claim a deduction in respect of additional household expenses of up to £6 per week (£24 per month) without the need for supporting evidence. Tax relief can be claimed for higher amount where the actual additional cost can be substantiated.
To download the whole Covid-19 Tax issues for Businesses Report visit this page here.
