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Equipping employees to work from home

9th Mar 2009
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In this article I look at the tax implications of setting up an employee to work from home. This is quite likely to be a popular route for some employers this year: not only have they discovered it is possible (thanks to the snow in February) but it could also offer some establishment cost savings - which all comes in handy in these difficult economic conditions.

An employer may provide various items of equipment and other resources for employees so that they can work from home. In doing so, the employer will be keen to ensure that no tax liabilities arise on employees as a result of the change in working arrangements. Whether the employee is to work at home full time or part time, most of the rules affecting their tax position are largely the same.

Equipment and facilities

The employer will probably provide some equipment to enable the employee to work from home. This might include a computer and printer, but may also extend to the provision of office furniture, a telephone service and access to the internet. In general these are referred at as accommodation, supplies and services used in employment duties. Section 316 ITEPA 2003 includes an exemption from tax in respect of the provision of these by the employer provided two conditions are met :

  • Condition A is that the use of the facilities for private purposes by the employee or members of his family or household is not significant, and
  • Condition B is that where the provision is other than on the employer's premises, its sole purpose is to enable the employee to perform the duties of the employment, and it is not an excluded benefit.

The excluded benefits are listed in S316(5) and include a motor vehicle, boat or aircraft, or the extension, conversion or alteration of living accommodation or adjacent land or accommodation.

So where equipment and facilities are provided at the employee's home Condition B is relevant in addition to Condition A - not significant private use.

The Employment Income Manual specifically highlights that this exemption is intended to cover office furniture and equipment, stationery and other similar supplies, home telephone lines in some circumstances, computers and internet connection in some circumstances. (EIM 21611)

Not significant private use

The guidance from HMRC first indicates that if something has both business and private use at the same time, then this is treated as private use - this outlines the principle of duality clearly in relation to this area. The guidance then explains that as "not significant" is not defined in statute, the specific terms on which the equipment or facilities are provided, and the requirement for the employee to use the facilities to perform his duties will have a bearing on the interpretation of private use. Where an employer makes clear that the equipment is provided for business use only and employees have this clearly communicated to them, then in general the claim that private use is not significant should be accepted. The manual (EIM 21613) makes it clear that a detailed log of business and private use is not necessary, and indeed a measure of absolute time spent using the equipment is not necessarily a reliable indicator.

So, where an employee has a desk, laptop computer, and various consumables provided for the performance of his duties, this is very unlikely to incur a tax charge.

However, the guidance makes it very clear that the exemption only applies to the provision of these facilities by the employer, and not to the reimbursement of expenses (taxable under Section 70 of ITEPA) nor to the payment of bills in the employee's name (taxable under Section 62). So the exemption applies solely to the provision by the employer of such facilities, if appropriate under a contract in the employer's name.

Internet access

The provision of internet service via dial up or broadband is the subject of separate guidance. The tax treatment (when the contract is in the name of the employer) is covered by the same legislation - Section 316 ITEPA. The Employment Income Manual, however, provides quite separate guidance on the tax treatment of internet access. EIM 21617 covers this clearly, and states that the exemption will be available when the purpose of the employer providing the access is solely for work purposes. Where there is a single billing arrangement which does not segregate business and private use, and the actual private use does not affect the cost of the package, then it will be accepted that no taxable benefit arises. Where the service is provided partly for private use by the employee then the benefit is fully taxable under the duality principle.

Once again where the contract is not in the name of the employer, and the employee is reimbursed some or all of the cost of internet access this is not liable to the exemption provided by Section 316.

Telephone line

The guidance dealing with fixed telephone lines in the employer's name was last updated in 2005, but the principles are long standing. An exemption will only be available if there is a clear business need for the employer to provide the employee with a telephone, for example if the making and receiving of calls from the home are vital and central parts of the employees’ duties. The employer will also have to monitor and control the costs of private use, and must have no intention of rewarding the employee through the provision of the telephone. These principles apply to a telephone line installed for calls, and also to a line installed to carry internet provision (although exactly how the guidance can be applied to a line on which no calls are made is difficult to appreciate). There are some useful examples at EIM 21616 showing cases where an employee is not likely to be taxable on a telephone.

Contract in the name of the employee

In the above scenarios, the guidance specifically excludes payments made to the employee as reimbursed expenses or when the employer pays a liability which is legally due by the employee. Both fall in other areas of the tax code, taxable under either Section 62 or 72, so that the exemption in section 316 does not apply. The employee is then normally in a position of being taxed on the expenses unless a claim is possible under Section 336 of ITEPA that the amount was one that the employee was obliged to incur and pay as holder of the employment and that the amount was incurred wholly, exclusively and necessarily in the performance of the duties of the employment. This is notoriously difficult to satisfy and probably means that no deduction will be available to most employees. More details of the situations where a deduction may be possible are below.

Exempt payments – homeworking rules

Where an employee works at home regularly for some or all of the working week, the exemption in Section 316A can apply where the employer makes a payment to him in respect of reasonable additional household expenses incurred in the carrying out of his duties at home. The guidance highlights increased heat and light costs, metered water supply and possibly house insurance or internet access. With regard specifically to internet access EIM 01475 highlights that when the broadband internet service is installed so that the employee can work from home, this is an acceptable additional cost, and may be reimbursed under this section, the payment being exempt from tax and NIC’s. It is commonly known that an amount of £3 per week is regarded as acceptable under this exemption. If the employer wishes to pay more he can either agree a scale rate in advance with HMRC or ask the employee to retain the evidence of the additional costs to support the exemption.

Employee claims for household expenses

If the employer has not reimbursed the employee for household expenses arising in connection with working at home, the employee is left seeking a claim under Section 336 ITEPA. This section is notoriously difficult to satisfy, and HMRC provided some guidance a few years ago to explain under what circumstances a claim would be possible. This now forms part of the guidance at EIM 32760 and following pages. Essentially, unless the employee has no choice but to work from home, and has no facilities to work on the employers premises (or is based too far away to make travel practicable) then no claim would be possible. Page EIM32790 includes some examples of where the tests are likely to be met.

Replies (3)

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By forgeron
09th Mar 2009 15:35

Weekly allowance
It went up from £2 pw to £3 pw on 1 April/5April 2008.

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By anthonyfreedman
09th Mar 2009 13:46

home working expenses
You state " It is commonly known that an amount of £3 per week is regarded as acceptable under this exemption. ". I had thought that the figure was £2/week. Please confirm that you meant £3 and how you arrived at this amount. Thank you.

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By User deleted
09th Mar 2009 12:34

Base for mileage?
If you have an agreed office base but work from home occassionally what are HMRC rules on where business mileage starts? Can you always claim mileage from home or do you always have to calculate from base?

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