Dave Collier
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Can we pay our workers the £2pw "working from home" allowance?

Can we pay our workers the £2pw "working from...

Increasingly we are asking our workers to take phone calls at home and/or log-in to our central servers to check on emails etc. as we gradually introduce more flexible working arrangements. We are considering paying everyone a flat £2pw allowance for the work they do from home. Is this likely to cause any issues with the tax office (ie. HMRC wishing to tax the allowance and/or requiring evidence from employees of time spent working from home) or is this a generally accepted allowance?

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07th Nov 2011 14:14

It's peanuts

It will cost more to tax it than the tax it raises.

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07th Nov 2011 15:15

£3 per week

Hello Dave

You can pay up to £3 per week without having to retain evidence / receipts to verify what you are paying (providing £3 per week does not exceed the additional costs they incur to work from home).  Anything over and above £3 and you have to ask for receipts.

I hope this helps

Best wishes

Paul

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Flying Scotsman
07th Nov 2011 15:43

Are we talking full time working from home or only a bit?

pjclar02 wrote:

(providing £3 per week does not exceed the additional costs they incur to work from home)

To place a caveat upon the above, my assumption here is that you have employees who periodically work from home, possibly for only a few hours a week? In which case HMRC might very well challenge this as effectively a lump sum payment. Clearly they would have to be unbelievably pedantic, but doesn't that fit the exact description of a modern HMRC Inspector?

Cue ELO song ...I remember the good old 1980's...

http://www.youtube.com/watch?v=UJ25csvQ-IY 

 

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Flying Scotsman
24th Nov 2011 14:12

No costs needed

pjclar02 wrote:

Hello Dave

You can pay up to £3 per week without having to retain evidence / receipts to verify what you are paying (providing £3 per week does not exceed the additional costs they incur to work from home).  Anything over and above £3 and you have to ask for receipts.

I hope this helps

Best wishes

Paul

You can claim £3 per week even if the costs are less than that.

They have to do some work from home that week to claim that weeks £3.

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08th Nov 2011 10:44

Pedantic

Yes, it's FrustratedwithHMRC's response that worries me. HMRC have a habit of being unbelievably pedantic with tiny amounts while at the same time letting large companies and rich individuals off the hook!

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andy.partridge
08th Nov 2011 11:10

HMRC Pedantry

Dave Collier wrote:

HMRC have a habit of being unbelievably pedantic with tiny amounts while at the same time letting large companies and rich individuals off the hook!

I think the first comment from George Attazder put it about right, for the amount of tax saved it probably isn't worth the hassle.

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08th Nov 2011 11:33

It's not about the tax!

It's not about tax. As a charity we don't pay tax, it's about paying our workers some sort of compensation for being asked to work more from home without getting hassle from HMRC for paying them this allowance. If it is supposed to be an allowance that can be paid without having to go through lots of bureaucratic hoops, form filling, gathering evidence, etc then we want to pay it to our workers. I just wanted to make sure that if we did pay this allowance then we wouldn't have to do anything else other than record it.

 

David

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tom123
08th Nov 2011 12:30

Compensation

Dave Collier wrote:

It's not about tax. As a charity we don't pay tax, it's about paying our workers some sort of compensation for being asked to work more from home without getting hassle from HMRC for paying them this allowance. If it is supposed to be an allowance that can be paid without having to go through lots of bureaucratic hoops, form filling, gathering evidence, etc then we want to pay it to our workers. I just wanted to make sure that if we did pay this allowance then we wouldn't have to do anything else other than record it.

 

David

I would be careful of going down this road as you seem to be looking on this as a way to make tax free payments to "workers" rather than a way of re-imbursing costs incurred from working from home.

 

 

 

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08th Nov 2011 14:56

No.

No, it's about reimbursing our workers for some of the costs of using their home - £2 per week is hardly going to cover very much is it? It's not going to go very far towards their own provision of a computer, telephone, space in the home, etc. is it? We, as an employer, just don't want any admin hassle because it simply isn't worth it. If it is a legitimate allowance that doesn't require much admin then we just want to pay it as part of employees expenses. I think Paul's answer above is the most concise. If the rules state that you don't need to provide evidence of payments up to £3 a week providing the payment doesn't exceed the workers costs then I am happy with that. We will just ask our staff to confirm that the allowance doesn't exceed their costs.

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14th Nov 2011 11:08

£3 per week

I dont think you even need to ask your employees whether there is any surplus.  HMRC allow £3 per week without receipts.

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By cfield
14th Nov 2011 12:04

Ongoing arrangement

The only rule about the tax free £3 per week is that it must be "an ongoing arrangement to work at home". Nothing about working at home full-time or even on a regular basis, and there is no minimum number of hours/days. If you are asking employees to check e-mails or take phone calls at home on a day-to-day basis, that sounds to me like an ongoing arrangement.

Just to be on the safe side though, I would ask employees to sign a form accepting that they will do this work as "an ongoing arrangement" and that you will pay them £3 a week to reimburse some of their additional costs.

To thwart even the most pedantic taxman, you could also have a paragraph  stating they must tell you if their costs are less than £3 a week (fat chance).

Incidentally, no need to net off any amounts saved, such as fares to work.

Chris

 

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By cfield
14th Nov 2011 12:16

P11Ds

By the way, I don't think these home-working payments are covered by most of the existing expense dispensations (if you have one at all) so you would probably need to report it on annual P11Ds. That might mess up their tax codes, so it might be an idea to ask your PAYE office to amend your dispensation to include them.

If you don't have a dispensation yet, the most hassle-free way of getting one is to download Form P11DX (see link below) and send it to your PAYE office.

http://www.hmrc.gov.uk/forms/p11dx.pdf 

You'll need to put the home working allowances under Other Expenses on page 3. You could even attach the form I mentioned in my previous post as an example of your system for making these payments.

Chris

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14th Nov 2011 12:20

Regular?

HMRC page on this does state that

a homeworking arrangement is an agreement with your employer that you'll work at home on a regular basis.

It also suggests a regular pattern.

Perhaps frequency is the issue, could it be regular but infrequent, say once a week. checking e.mails over the weekend, writing up reports etc.

 

 

 

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By cfield
14th Nov 2011 13:20

New guidance?

I'm sure HMRC never used to say it must be regular (I distinctly remember the phrase "ongoing arrangement") but even so regular could mean just 5 minutes a day. I'm sure you don't have to work at home all day. Will just have to look up the legislation I guess, if that makes it any clearer. Any volunteers?

Chris

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14th Nov 2011 14:05

HMRC's rules syndrome

Whilst I really don't think that the OP's proposals merit the amount of debate that's been generated, because I really don't believe that HMRC aren't even going to bother with this, it should be noted that this isn't some magic bit of "niceness" on the part of HMRC, it's a legislative provision in ITEPA 2003.

"316A Homeworker’s additional household expenses.

(1) This section applies where an employer makes a payment to an employee in respect of reasonable additional household expenses which the employee incurs in carrying out duties of the employment at home under homeworking arrangements.
(2) No liability to income tax arises in respect of the payment.
(3) In this section, in relation to an employee—
“homeworking arrangements” means arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home; and
“household expenses” means expenses connected with the day to day running of the employee’s home.”.
(2)This section applies to payments which the employer makes on or after 6th April 2003 in respect of expenses which the employee incurs on or after that date."

The emphasis given is mine.

As usual, HMRC are over-egging their pudding.  There's no need for there to be an obligation that the employee work at home (as their guidance suggests), simply that under the arrangements between employee and employer (and arrangements can and invariably do arise by custom) the employee performs some of their employment duties at home.

If this happens regularly (there is a consistent - but not necessarily uniform - pattern of the behaviour) no tax liability arises in respect of the reimbursement by the employer of reasonable additional household expenses.

HMRC are noturious for having an unreasonable interpretation of the word reasonable.  It is implicit in the use of the word reasonable in this context that it may be difficult to quantify and provide evidence to support of a precise amount, but in all probability (given HMRC's consistency in understating the boundaries of reasonableness) it's more than £3 per week.

I'd be interested to know how many employees the OP is concerned with.  Answers on a spreadsheet showing the actual amount of tax at stake!

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15th Nov 2011 12:53

Helpful

Thanks for the interesting and helpful observations. We are talking about 250 employees so £39000 if £3pw were paid, so I guess the tax on this including employers NI would be at least £16000. Not something I want any doubts about! We do have a dispensation and I take your point about dispensations.

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15th Nov 2011 13:00

How to print?

By the way in the good old days there used to be a button I could press to print off a thread in a decent print-friendly format. That button seems to have disappeared and I can't work out how to print this thread off in a compact and suitable form. Any clues anyone?

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15th Nov 2011 14:01

Workers not paid by employer for use of home

What happens if the member of staff access her email and deals with queries at home, could she claim the £2 or £3 per week direct with hmrc and include as an expense in her coding rathr than the employer paying her?

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24th Nov 2011 13:48

P11D and £3 pw for homeworking

The £3 pw allowance is an exemption under S316A ITEPA 2003 and as such is not required to be reported on P11D nor included on dispensation

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24th Nov 2011 14:43

The last two posts...

... aren't quite correct.

S.316A (as I've reproduced in a previous post) does indeed convey an exemption, but doesn't mention an amount.  For an employer wanting to protect their position, applying for dispensation is a sensible step.

I disagree with Peter.  It is implicit in the legislation and explicit in HMRC guidance that the amount paid by the employer should not exceed actual costs.  As noted above, the £3 per week "limit" is HMRC's fiction.  The amount paid should relate to the additional costs incurred by the employee and the time periods over which they're incurred.

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24th Nov 2011 14:48

HMRC agrees with me

http://www.hmrc.gov.uk/incometax/relief-household.htm

 

How much relief you can get

You can get either:

A flat rate deduction of £3.00 per week (from 2008-09) for each week that you've got to work at home. This doesn't include the cost of business telephone calls.A larger amount if your extra expenses are higher than £3.00 - but you'll have to show how you've calculated the figure.

The rate for 2007-08 and earlier is £2.00 per week.

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24th Nov 2011 15:31

if employer does not pay

Hi anyone could you answer the query regarding working from home and the employer makes no payments directly, could the employee claim through itr with hmrc, sometimes the work from home may be a full day a week, over a year it would be mount up

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24th Nov 2011 17:05

seems an awful lot energy has got into something that is worth

£2 per week (assuming the employees do actually do something at home?!)

 

Alternatively let your employees leave a little earlier from work on a friday or something as a sweetner given they do stuff for you from work - employee doesn't feel used and employer doesn't incur any potential tax/nic (if it is raised as an issue by the revenue) or any associated costs/worry if advice taken is wrong or revene carryout an enquiry.  Sorted......

 

 

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