The travel and working restrictions introduced as part of the response to the Covid-19 pandemic, and which led to employees working more at home rather than in the office, has accelerated the move towards a hybrid working model after restrictions have been eased.
This has been particularly noticeable in respect of employers being more tolerant in allowing some employees the choice of where they want to work in between working from home and/or working in the office, often agreeing a “hybrid” arrangement in working between two locations – home and office.
In addition, the government has recently announced the intention to change employment law so that employees have the right to request more flexible working from the first day of their new employment.
The result of the change in working arrangements leads to a number of tax and NIC implications and employers have asked a number of questions related to what areas they can pay for employees, and whether there are any tax/NIC pitfalls in doing so.
What are the key questions employers need to consider?
Can I reimburse employees tax free for travel from home to the office?
In many cases the answer to this question will be “no”!
HM Revenue and Customs (HMRC) usually regards travel from an employees’ home to their “permanent workplace” as “ordinary commuting”. If an employer meets the cost of any travel, accommodation and/or subsistence (including items such as hotels near the workplace) in relation to ordinary commuting those will be taxable and liable to NIC.
The tax expression “permanent workplace” is not defined in the legislation and is subject to interpretation. It is typically the place where an employee is usually required by their employer to perform the duties of their employment. The issue with home workers is that they often perform duties from home as a personal choice, rather than as a formal requirement of their job.
Two of the key considerations when moving to a hybrid situation are where is the permanent workplace, and has it changed.
There are many permutations in relation to hybrid arrangement including employees who will be working:
- wherever they wish, with complete flexibility on which days they attend the office/work at home; or
- specific days at home and specific days at an office location; or
- a set number of days at home and a set number of days at an office.
It is important to consider the agreed working arrangements and travel patterns and also, where appropriate, the position prior to March 2020. It is possible that the determination of a permanent workplace for an employee who was employed during the pandemic could be different from a longstanding employee.
Finally, it must be remembered that if an employer incorrectly pays expenses free of tax and NICs they will be liable for any subsequent liability, plus interest and potential financial penalties of up to 100% of the liability.
Can I pay for home office equipment for employees who work at home?
The requirement to work from home has, in some instances, required employers to provide equipment to employees who are working remotely.
Under existing tax rules, where an employer provides an employee with home office equipment (for example a desk or printer) for the sole purpose of enabling the employee to work, and any private use of that equipment is insignificant, the provision of the equipment should be exempt from tax and NIC.
Prior to the pandemic, this exemption was conditional on the employer retaining ownership of the equipment. A tax liability could have arisen if ownership of the home office equipment passed to the employee.
The government announced that from March 2020 a temporary tax and NIC exemption applied to ensure that no tax liability arises where employers reimburse employees for personal spending on home office equipment. This temporary exemption is provided on two conditions:
- the employee is working from home as a result of the coronavirus outbreak, and needs the equipment to work effectively; and
- the employer’s offer of reimbursement is made available to all its employees on broadly similar terms.
While this relief was originally intended to apply for the 2020/21 tax year only, it has been extended until 5 April 2022.
Can I reimburse employees for any home expenses?
Household expenses are likely to have increased for those who have been working from home as a result of lockdown. Employers need to decide whether it is appropriate to contribute towards these additional costs, or whether it is reasonable to conclude that they are balanced by the reduced costs of commuting.
Under pre-pandemic rules, where the employee is working from home under a “homeworking” arrangement, and additional household costs are incurred in carrying out employment duties, the employer can either:
- reimburse the employee for actual reasonable additional household expenses (such as electricity, gas, etc); or
- pay an HMRC-agreed tax and NIC-free allowance of up to £26 per month (or £6 per week).
The “actual costs” exemption does not extend to fixed costs (such as council tax or rent) unrelated to whether the employee is home or office based.
As the administrative costs of identifying and then reimbursing the additional household costs often outweigh any benefits of the expense itself, most employers would use the second option and decide to pay the tax and NIC free allowance of £26 per month. This is subject to there being a formal homeworking arrangement in place, under which the employee regularly performs some, or all, employment duties at home.
For a hybrid arrangement, HMRC guidance states that where an employee agrees to work three days each week on the employer’s premises and two days at home, it is accepted that they are “regularly” working from home and the full tax-free allowance can be paid for the entire week. HMRC also confirms that no apportionment of the £26 per month is required if the employee works from home for only part of the week.
Where the employer decides not to pay the allowance, HMRC has temporarily allowed employees in that situation to make direct claims for tax relief using the £6 per week as an allowance until 5 April 2022.
If you would like more information about this, or any other employment tax related matters, please do not hesitate to get in touch:
Lee Muter
Employment Taxes Partner
E: leemuter@unw.co.uk
T: 07810 852 362
Paul Tucker
Employment Taxes Senior Manager
E: paultucker@unw.co.uk
T: 07392 870 199
