Generally, where expenses payments and benefits-in-kind are provided to employees they are deemed to have been made or provided by reason of that employment. Consequently, the payments or benefits are taxable on the employee. However, some expenses payments and benefits-in-kind are exempt from tax and, generally, employers can make tax and NIC free payments to an employee in respect of reasonable additional costs incurred for working at home, unless the employee is only working from home informally or occasionally.
Additional household costs
Where an employee works regularly from home under agreed ‘homeworking arrangements’, their employer may pay up to £6 per week tax-free (see below) from 6 April 2020 (£4 per week up to 5 April 2020) without requiring supporting evidence of the cost.
If the employer pays more, then they must either:
- keep supporting evidence to show that the payment is wholly for additional household expenses incurred by the employee in carrying out the duties at home, or
- seek an arrangement with HMRC whereby they can pay a higher amount without a need to keep supporting evidence, or
- tax the excess
HMRC’s guidance indicates that where an employee is working from home due to COVID-19 either because the employee’s workplace has closed or the employee is following advice so self-isolate, a homeworking arrangement will exist for this period. In any other case where an employee is working from home as part of an employer’s response to COVID-19 it is advisable to agree with the employee in writing that homeworking arrangements exist.
Homeworking exemption – costs in excess of exempt amount
Tax exempt payments can be made to meet or reimburse reasonable additional household expenses that an employee incurs in carrying out the duties of the employment at home under homeworking arrangements. Typically, this will include the additional costs of heating and lighting the work area and, if applicable, the metered cost of increased water use. There might also be increased charges for internet access, home contents insurance or business telephone calls. It may be advisable for employees to check that their home insurance permits working from home and employers should check their insurances as regards equipment used outside the workplace.
The additional household costs must be reasonable and must be incurred in carrying out the employee’s duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment.
Broadband
As noted above, the additional household expenses may include an employee’s broadband charges in certain circumstances. If an employee who begins to work from home under homeworking arrangements is already paying for a broadband internet connection at home, there is no additional expense to be claimed. If the employer reimburses the employee’s broadband internet charges in such circumstances the reimbursement is taxable. But if the employee does not already pay for a broadband internet connection at home, and needs one in order to work from home under homeworking arrangements, the broadband fee is an additional household expense that the employer can include within tax-free homeworking payments. In this case, the broadband would be provided for business use and any private use must be insignificant.
Employees’ un-reimbursed household and equipment costs
Employees may be able to make a claim for tax relief on the difference between the cost of additional household expenses arising from working from home and the tax-free payment (if any) received from the employer contributing to these costs.
For example, an employee produces evidence that his additional household expenses amount to £9 per week. However, his employer makes a contribution of £6 per week towards those expenses. That contribution is exempt from tax. The amount the employee is able to claim tax relief on as a deduction from earnings is therefore £3 per week (from 6 April 2020), being the difference between his allowable, additional expenditure of £9 per week and his employer’s reimbursement of £6 per week.
For a claim for tax relief on household expenses to be made it is necessary to evidence the expense has been incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
Where an employer’s premises is closed or access is restricted as a result of the employer’s response to COVID-19 and the employee is required to continue to perform the duties of their employment at home as a consequence (i.e. a ‘homeworking arrangement’ exists) HMRC is may agree that the conditions for relief are met. However, our understanding is that HMRC will only accept a homeworking arrangement exists for the purposes of an employee making a claim for tax relief for their additional household expenses where no facilities were available for the employee to work at the employers premises and there was no choice available to the employee other than to work from home.
Equipment
Generally, where an employee provides their own equipment in order to work at home no tax relief is available for the cost of that equipment. However, where plant or machinery, such as a computer is necessarily provided by an employee, for use in the performance of the duties, the employee may be entitled to a deduction by way of capital allowances for depreciation related to its business use. No deduction is available if the employee’s employer would have provided the plant or machinery necessary to do the job, but the employee chooses to provide it instead.
Normally, equipment given to the employee by the employer solely to carry out the duties of employment is exempt from tax. The exemption is retained where there is some private use and that private use is ‘insignificant’. However, where the equipment is also used outside work and that private use is significant, the exemption does not apply and a benefit-in-kind tax charge will arise. The exemption would include office equipment and consumables provided by an employer to an employee for use other than at the employer’s premises, and which are used by the employee in performing the duties of their employment, so long as private use is prohibited or insignificant. Equipment excluded from these rules include motor vehicles, boats and aircraft, and the conversion/alteration of living accommodation or an adjacent building.
If you would like to discuss any of this please get in-touch with your usual contact at Claritas Tax.
