The Coronavirus lockdown resulted in a great many employees working from home. As an employer, it's worth letting your employees know if they are entitled to any tax relief ...
The tax rules say that certain costs relating to employees working from home can be tax-free and I've summarised the three main rules that could apply:
- Tax-free payments by employers
The tax rules specifically allow payments made by employers to employees to cover a homeworker's additional household expenses to be tax-free in certain circumstances. The rules apply where employers make payments to an employee for reasonable additional household expenses which the employee incurs in carrying out their daily duties at home.
Payments could be made to meet or reimburse heating, lighting, water, broadband, home insurance and home telephone calls. If working from home creates a liability for business rates, these additional costs can be included.
HMRC says that a simple payment of £6 per week (that's £26 per month for salaried employees) can be made under these rules. Prior to the 6th April 2020, this amount was £4 a week. Employers can agree on a scale rate payment with HMRC if they feel that is the right approach for them.
- Tax relief on costs incurred by employees
The legislation also contains a general rule for employees to claim tax relief for employment-related expenses that are incurred wholly, exclusively and necessarily in the performance of the duties of their employment.
This is something that historically, has been very difficult to prove with HMRC but during the Coronavirus outbreak, these tests could be met but it is worth clarifying with HMRC before authorising your employees to make purchases that they beleve are subject to tax relief.
- Small amounts of private use of assets provided by employers
Assets and services provided to employees to enable them to do their jobs have generally given rise to a taxable benefit if there was any element of private use, but items are exempt from tax where the private use is not significant. This is mainly intended to cover the private use of company-owned computers, but it also applies to the private use of items such as telephones and photocopiers.
Where the benefit is provided at an employee's home, HMRC state that three conditions must be satisfied for the benefit to be tax free:
- the sole purpose of providing the benefit must be to enable the employee to perform the duties of the employment - any private use must not be significant - the benefit must not be an 'excluded benefit' e.g. a car.
- Other benefits and expenses provided to employees
HMRC has published guidance on how to treat some expenses and benefits provided to employees during the COVID-19 outbreak. It covers various topics such as volunteer fuel and mileage costs, paying or refunding transport costs, company car 'availability', salary sacrifice, employer-provided loans and how to report such expenses and benefits to HMRC.
In general, the guidance makes little or no concession to the tax law that is normally applicable to the provision of benefits or the payment of an employee's expenses.
For example, if an employee has a company car, which is not being used by the employee, HMRC state that the car should still be treated as being made 'available for private use'.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.