Working from home – what can be provided tax free?

Employment Tax, Human Capital Advisory

There has of course been a huge increase in employees working from home as a result of the Coronavirus outbreak. The employer may have closed their premises, or employees may be following advice to self-isolate.

But what are the tax implications of the various items that employers provide to employees in this situation? And can any be provided / paid tax free?

Some of the key items – and the associated conditions - are considered below. There is an important new exemption for Coronavirus-related reimbursed home office expenses.

These principles would not be relevant to employees who have been furloughed under the Coronavirus Job Retention Scheme and therefore are not working.

The principles around some other key benefits changes arising from coronavirus, as well as homeworking costs for self-employed individuals, are considered further below.

 NON-TAXABLE TAXABLE
Mobile phones and SIM cards (no limit on private use)
  • Must be only one per employee

 
Broadband
  • Connection needed to work from home
  • Wasn’t already provided
  • Must be for business use
  • Private use limited
Broadband
  • Connection was already provided
New exemption
Reimbursed expenses for home office equipment purchased by the employee
  • Equipment obtained solely to enable employee to work from home during the Coronavirus outbreak
  • Would have been non-taxable if provided directly by the employee (see below)
  • Only temporary - from 16 March 2020 to the end of tax year 2020/21

 

Existing exemption
Home office equipment

  • Provided by employer
  • Mainly business use
  • No siginificant private use - based on employee's duties and the need for them to have the items for thier job, not time spent

 

Reimbursed expenses which don't meet the conditions of the new exemption
  • Can potentially be reported on PAYE Settlement Agreement (PSA)
Laptops, tablets, desktops etc
Office supplies
  • Provided by employer
  • Mainly business use
  • No significant private use - based on employee’s duties and need for them to have the items for their job, not time spent
Reimbursed expenses for IT / office equipment bought by the employee
  • Can be reported on PAYE Settlement Agreement (PSA) 
Additional household expenses
  •  Electricity, heating etc
  • Can be paid or reimbursed
  • £4 per week up to 5 April 2020
  • £6 per week from 6 April 2020

    Employees should check with the employer if they will accept claims above these amounts and should keep relevant receipts
 
Employer-provided loans
  • Salary advance / hardship loan
  • Value of less than £10,000 in a tax year
 
  Reimbursed accommodation / subsistence expenses for employees who are self-isolating but cannot do so in their own home
Employee using own vehicle for business
  • Approved mileage allowance payments
  • Up to 10,000 business miles – 45p per mile
  • After that – 25p per mile
 
Trival benefits
  • Cost £50 or less to provide
  • Not cash or cash voucher
  • Not reward for performance
  • Not contractual

    Could be flowers if somebody is unwell or self-isolating
 

Some other benefits changes arising from coronavirus

  • Salary sacrifice - the government guidance on the Job Retention Scheme is that coronavirus counts as a ‘life event’ that could warrant off-cycle changes to salary sacrifice arrangements
  • Child benefit – families that were not previously eligible for child benefit (due to the tapering of the benefit where the annual income of one parent is £50k+) may become eligible if their income has fallen due to coronavirus. Claims can only be retrospective for a maximum of 3 months

Self-employed homeworking costs

There needs to be a reasonable method for apportioning costs between business and private use, for example based on the number of rooms or homeworking time. Costs which can potentially be claimed on a proportionate basis are:

  • Heating, electricity
  • Council Tax
  • Mortgage interest or rent
  • Internet / phone use

Flat-rate simplified expenses can be used as an alternative to actual costs. This method is available to self-employed sole traders and business partnerships that have no companies as partners. Individuals must work 25 hours or more a month from home.

The flat rate does not include phone or internet expenses, which must be claimed based on the business proportion of actual costs.

Hours of business homeworking per month Flat rate per month
25-50 £10
51-100 £18
101+ £26

Find out more

If you have any queries on any of the above or would like to discuss how we can assist further, please contact:

Nigel Morris, Employment Tax Director - nigel.morris@mhllp.co.uk / 07718 340 634

Richard Maitland, Employment Tax Partner - richard.maitland@mhllp.co.uk / 07711 373 584

Gordon Thrower, Senior Employment Tax Manager – gordon.thrower@mhllp.co.uk / 07595 069 016



Employment Tax, Human Capital Advisory