Employment tax consequences of working from home
The government’s request, that everyone in the UK who can work from home does so until further notice, has turned the spotlight on the tax consequences of employees working from home.
Caroline Harwood, partner and head of employment tax at national audit, tax, advisory and risk firm Crowe, said: “The issue of coronavirus is both a national and a global concern, with many countries in lockdown.
“As a result of advice from government, many businesses have closed workplaces and are requiring staff to work from home wherever possible.”
Harwood said that, in the first instance, this decision had initially placed considerable strain on IT departments to enable staff to function online from home satisfactorily.
Having adapted to working from home, both employers and employees were now being forced to address the additional, knock-on costs of home working.
“Employers must consider the employment tax consequences, both for employers and employees, of working from home and the impact of the coronavirus pandemic.”
The rules state that employers may make payments free from tax to employees for reasonable costs they incur while working from home, if there are arrangements between the employer and employee, and the employee works at home regularly under those arrangements.
If so, the employer can make payments exempt from tax for the additional costs of heating and lighting the working area, the metered cost of increased water use, increased charge for internet access, home contents insurance or business telephone calls.
HMRC will permit payments exempt of tax of up to £6 per week or £26 per month without the employer having to justify the amount, and the actual additional costs incurred by the employee.
Harwood said: “For employees, the rules are more restrictive and depend on any amounts already reimbursed by their employee. However, the government’s advice to work from home during the coronavirus pandemic raises an interesting question.
“Generally, the conditions covering working from home will normally only be met by a very small proportion of those who occasionally work from home. Usually, any such arrangement is for convenience rather than a requirement of the job.
“As it stands, if an employer encourages or allows their employees to work from home due to concern around the virus, this would not meet the conditions for an employee to claim a deduction for their expenses.”
However, the position following government guidance around COVID-19 could change this.
Harwood said: “In this instance, if an employer requires their employees to work from home, and does not permit them to work from their premises, and other conditions are met, this could mean that the employee can claim a deduction for appropriate working from home costs.”
In this case, employees can deduct from their earnings, the additional unit costs of gas and electricity consumed while a room is being used for work, the metered cost of water used in the performance of duties, and the unit costs of business telephone calls including dial-up internet access.
These costs can be difficult to quantify so HMRC will accept a deduction of £6 per week, or £26 per month (excluding the cost of business telephone calls).
Where employers have provided additional equipment to employees such as mobile phones and sim cards, laptops, tablets, computers and office supplies, these are non-taxable where used mainly for business purposes and not significant private use.
Provision of broadband is only non-taxable if the employee does not already have a broadband internet connection and one is required to work from home, otherwise the provision of broadband is taxable.
Harwood said: “This is a complex area that has suddenly been thrown into the spotlight and employers and employees will be concerned to ensure they have followed the rules correctly.
“If you are unsure on the tax treatment of working from home, or have any other employment tax queries, our Employers Advisory Group would be happy to assist.”
Ends (666 words)
Miriam Sherwood, Senior Marketing Manager (Regions), Crowe. Tel: 0121 543 1900
Notes to Editors:
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