What is the background?
The popularity of employee flexible working patterns has increased since the COVID-19 pandemic. There are a variety of working patterns which have evolved including:
- Majority or all time spent at the employer’s workspace
- Distance/homeworking
Where there is no requirement to work from an employer’s workspace or no employer workspace available. - Distance/homeworking – the choice of the employee
Where employees are allowed to work at a location of their choice. - Hybrid working
Where some time is spent at the employer’s workspace, but there is flexibility for rest of time.
Often these have been agreed contractually or have developed as a choice that employees have taken. The tax and National Insurance (NI) implications can be very different depending on which working pattern the employee has agreed or chosen. In addition, if an employee is working from home there may also be issues depending on where the employee’s home is.
What is the issue?
Tax legislation enables an employer to reimburse an employee tax and NI free for the costs of their travel and subsistence to a place of work which is temporary in nature.
However, with the number of potential workplace permutations there is a risk that employers adopt the wrong tax treatment. For example, an employee who is distance/home working out of choice may potentially face a tax and NI liability on their expenses in visiting their employer’s workplace, depending on the frequency of visits.
It is often difficult to establish an employee’s workplace and in some cases, what happens in practice and what is shown in the contract may be completely different. HMRC will look carefully at travel and subsistence if they undertake a review and will look to tax and subject to NI any they consider are in respect of commuting costs.
The situation is even more complicated where the employee’s home is outside of the UK and the employee is intending to work remotely from another country.
What do employers need to consider?
Employers need to consider a number of aspects relating to their workers as follows:
- Identification of the workplaces of all employees.
- Review workers terms and conditions to understand the location where they are actually and contractually based and address any differences;
- Update their expenses policies specifying when and where workers travel and subsistence will be reimbursed so that employees are aware of when they can be reimbursed and the implications for tax and NI;
- Ensure that any managers or supervisors responsible for the approval of expenses are aware of the rules relating to the reimbursement of travel expenses;
- Ensure that any expenses claim forms, or corporate credit cards, are set up to identify and capture the reimbursement of travel costs for the different employee work patterns;
- Review how the amounts reimbursed flow through to various nominal codes and are then picked up for reporting purposes;
- Ensure that any tax exemptions are applied correctly for subsistence related to business journeys;
- Report any taxable items (including any associated VAT) on either via the payroll, the P11D process, or PAYE Settlement Agreement; and
- Carry out an annual review into expenses to ensure the process is working effectively.
How can UNW help?
UNW’s experienced team has unrivalled experience in helping employers review and then set up their systems and processes to ensure that they are fully compliant.
Our systematic approach towards these reviews helps identify any areas where errors could occur, and most importantly, how the employer can rectify matters for the future.
Often, an employer will appreciate a “mock” HMRC Employer Compliance Review where our specialists can carry out a “friendly” review based on HMRC’s approach towards these types of issues. While the result is often to find areas of weakness, employers often value the proactive approach towards dealing with the issue.
If you would like more information about this, or any other employment tax related matter, please contact our team above.
