COVID-19: Tax And Working From Home
Swapping the office for the kitchen table
The year 2020 will go down in history as a pivot point in many of our lives, where we ditched the daily commute to work safely from home.
This article looks at the rules for both employers and employees when working remotely - it’s worth making sure your clients are aware.
What are the rules for employers around staff working from home?
Employers may cover certain reasonable costs their staff incur when they’re required to work from home. These payments will be exempt from tax.
Reasonable costs for the employee would include:
- The unit costs of business telephone calls
- Any requirement to upgrade their internet package in some way (we’ll look at this again later)
- The metered cost of electricity, gas and water used in the performance of duties
- Costs relating to the installation of a business phone line
These payments can be made as long as:
- Formal arrangements have been agreed between the employer and employee
- The employee is expected to work from home regularly each week
How much will HMRC allow tax-free payments to be?
In order to be exempt from tax, payments must:
- Be up to £6 per week or £26 per month
- Reflect actual costs the employee incurred (i.e not estimates)
The rules for employees
The tax rules for employees who now find themselves working from home are a little more restrictive. It also depends on what (if any) amounts have already been reimbursed by their employer.
Employees may be able to claim a deduction from their earnings, as long as the costs incurred are entirely the result of working from home.
HMRC also need to be satisfied that:
- The duties an employee is undertaking at home are exactly as they would be expected to undertake if they were working on site
- These duties require specific facilities (such as a faster broadband connection) and they can’t be completed without it
- These facilities weren’t already available
- The employee has no choice but to work remotely
Note: The above are general criteria that apply in ‘normal’ times. The government have, however, drawn up additional guidance that applies to the COVID-19 pandemic. This guidance says that if the employee meets the above conditions, and they need to work from home during the outbreak, they may be able to claim a deduction for relevant home-working costs.
Why £6 a week, or £26 per month?
As the costs of extra gas, electricity, water etc. can be difficult to quantify, HMRC has made it simpler by accepting a deduction of £6 per week or £26 per month. Note that this excludes the costs of any business calls. If the employee incurs costs which are still reasonable but which are higher than these set amounts, then they will need to provide their employer with accurate records to show how they’ve done their calculations.
Some employers may decide to cover addition expenses at their discretion, over and above the tax deductions offered by HMRC. If this is case, employees cannot then claim twice but also receiving a tax rebate from HMRC.
Employees wishing to claim a tax rebate from HMRC will need to do it via self-assessment. Alternatively, they can do it online on the Gov.uk website if they are claiming for an amount that’s under £2,500 in a single tax year.
At this point we recommend employers check which expenses are taxable.
Other considerations when employees are working from home
Here are some of the other common expenses that are relevant.
Office supplies, computers, tablets and laptops
If these are for the purposes of business - and not personal use - then they’re non-taxable. The government has also announced a temporary National Insurance disregard and tax exemption to ensure that home office equipment purchased by employees does not attract NIC and tax liabilities when reimbursed by the employer.
Two conditions must be met here though:
- The equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak
- The provision of the equipment would not have attracted income tax if it had been provided directly to the employee by their employer, or on the employer’s behalf
These rules are backdated to the 16th March 2020 and will run until the 5th April 2021.
Employees using their own vehicle for business
The approved tax-free mileage rate is 45 pence per mile up to 10,000 miles (25 pence per mile thereafter). Employees can claim tax relief on mileage costs from HMRC, as long as their employer has not already reimbursed them.
Employees using a company car can continue to do so as agreed.
This only applies if the employee either doesn’t have an existing broadband internet connection at home, or if it needs upgrading specifically so they can do their job remotely. However, in order for it to not be taxable, the broadband must be almost entirely for business use with very little private use. This may require employees to track and record their internet usage should HMRC raise a query.
Office equipment that is purchased by an employer to be used by an employee who is working from home is taxable. It should be reported as a taxable benefit.
Mobile phones and SIM cards
Mobile phones and SIM cards that need to be purchased so that the employee can work from home are non-taxable. Only one of each applies per employee.
Employer provided loans
Some employers are keen to help their employees in these difficult times and offer things like salary advances or loans. If this is the case, any loan which is offered by an employer to an employee is non-taxable, as long as it’s to a maximum of £10,000 per tax year.
If an employee becomes ill with suspected COVID-19 symptoms and needs to self-isolate, but aren’t able to do this at home, then any hotel and subsistence costs are taxable.
Get in touch - we’re here to help
At Myriad Associates we are proud to offer our services to businesses and accountants alike. We’re specialists in all types of innovation funding, including R&D Tax Credits and R&D Grants, and are on hand to assist you in making like a little easier for your clients in these unprecedented times.
If you would like to discuss anything we’ve discussed in this article and how it may relate to your clients’ innovative projects, please do use our contact form or call us on 0207 118 6045.