The COVID-19 lockdown saw a surge in the numbers of employees working from home. Many staff have yet to return to their place of work and may not for some time. We provide the answers to frequently asked questions about tax and working from home expenses.
Employers can reimburse certain specified costs incurred by employees when working from home by making a nominal fixed payment, or a larger contribution. Here are the rates you can pay without affecting income tax or National Insurance:
- Nominal payment: You can pay £6 per week (or £26 per month to employees paid monthly) in recognition of costs like additional heat, light, or metered water. This is the simplest route to take as you do not have to justify the expenditure and your employee doesn’t have to keep records.To qualify, payment must be in relation to reasonable additional household expenses incurred by the employee to carry 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 have confirmed that employees working from home because the workplace has 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.
- Larger contribution: you can potentially reimburse employees by more than £6/£26 for homeworking expenses. However, this option is less straightforward and you must provide an analysis of costs.
Please contact your RfM advisor for advice on the best approach in your circumstances.
Can employees claim tax relief themselves?
Yes, employees looking to recoup costs can potentially be reimbursed for homeworking costs by 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). As with the employer method, there is no need to keep records.
It is worth noting that tax relief for making business phone calls can be claimed separately but a record of the costs must be recorded. Employees can claim online, by phone or post, or via their self-assessment tax return, if they usually file one. Further guidance for employees on how to claim tax relief on expenses can be found here.
A note of caution: the gateway criteria for employee claims are normally very strict. It does not usually follow that, where an employer doesn’t reimburse, an employee can get tax relief by default. While it is likely that HMRC will accept that its usual tests are met if someone is working at home because of COVID-19, it has yet to confirm some aspects of the position. It is worth highlighting this to employees; for example, where there is a degree of choice over homeworking as lockdown restrictions are eased.
Do normal rules on taxable benefits and expenses still apply during COVID-19?
Broadly, yes. In most cases, it’s (tax) business as usual.
As an example, you can provide one mobile phone and SIM card per employee, with no restriction on private use, and it won’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 is provided solely to enable the employee to perform the duties of their 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.
Check which expenses are taxable if your employee works from home due to coronavirus (COVID-19) here
Learn more about how to treat certain expenses and benefits provided to employees during coronavirus (COVID-19) here
Are there any new COVID-19 rules?
Yes. There are new rules to cover reimbursement to an employee who has bought home office equipment e.g. a table, chair or monitor. Normally, reimbursement after an employee makes a purchase 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. Please get in touch if you need advice about this.
What about employer-provided cars?
Despite the fact that cars didn’t go anywhere during lockdown, the usual rules on company cars mostly still apply – both for furloughed employees, and those working at home because of COVID-19. For tax purposes, the car is still treated as ‘available for private use’. This applies even if you have told employees not to use it; asked someone to take and keep a photographic image of mileage 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 only in limited circumstances, where COVID-19 restrictions on movement prevent it from 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.