Sarah Laing looks at some tax aspects of homeworking, which have become particularly relevant due to Covid-19.
As we know, the Covid-19 crisis has meant that many employees are now working from home. There is already evidence of the environmental and commercial advantages of homeworking, but many employers have also said they are experiencing improved productivity and other positive benefits stemming from employees having a more balanced work/home lifestyle.
Some employers now feel that more employees should be based from home permanently, with only a limited time spent in the office.
Time for change?
Unfortunately, the current tax legislation is quite dated when it comes to dealing with expenses for homeworking, and the professional bodies have recently called on HMRC for revised legislation and guidance to facilitate and support what is increasingly being seen as the ‘new normal’.
During the national lockdown, many employers moved quickly to enable their employees to work from home by sanctioning the purchase of computers, monitors, desks and so forth. This immediately highlighted different tax rules applying depending on whether equipment was paid for by the employer or by the employee and reimbursed.
Fortunately, the government responded to the irregularities and confirmed that tax relief can be claimed on the provision of equipment, provided the following conditions are met:
- The equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak; and
The provision of the equipment would have been exempt from income tax had it been provided directly to the employee by or on behalf of the employer.
Currently, the relaxation applies until 5 April 2021, but HMRC may seek to extend the rules as more businesses increase employee homeworking arrangements.
HMRC has increased the amount of an existing flat rate tax deduction, which is available for employees who incur additional household costs because they work at home under homeworking arrangements. From 6 April 2020, the allowance has increased from £4 per week to £6 per week, which equates to £312 a year.
Broadly, ‘homeworking arrangements’ are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of their employment at home.
There is no requirement for any part of the employee's home to be used exclusively for the purposes of the employment; in fact, if any part of the home is used exclusively for work, problems could arise on the future sale of the house, as part of the capital gains tax principal private residence relief may be lost.
HMRC accept that homeworking arrangements exist where:
- there are arrangements between the employer and the employee; and
- the employee works at home regularly under those arrangements.
The exemption will apply when ‘an employee works at home regularly where working at home is frequent or follows a pattern. For example, where an employee agrees to work three days each week on the employer’s premises and two days at home you should accept that the work at home is regular. This will be so even if the days on which the employee works at home vary from week to week.’
However, a degree of care must be taken and the HMRC guidance also advises that the exemption ‘will not apply where an employee simply takes work home in the evenings’.
The cost of ‘reasonable household expenses’ (gas, electricity and so forth) should be allowable for tax and National Insurance contributions purposes.
The Covid-19 pandemic has changed the world and the way people work. Professional bodies are calling on the government and HMRC to modernise the dated tax legislation to reflect modern working practices. It seems likely therefore that we will see forthcoming changes in this area.
Employers who wish to pay more than the £6 per week guideline rate should seek upfront approval from HMRC. Failing that, records will need to be kept of the actual additional costs incurred by each employee.