Tax relief while working from home
Millions of employees have been forced to work from home during the coronavirus (COVID-19) pandemic, which has meant significant changes to both working practices and home life. For many, these changes have proved to be a boon, and some employees may never return full-time to their workplaces. For others, the reopening of their place of business cannot come soon enough.
As more people turned their homes into offices, tax-related questions have arisen over the availability of reliefs, and HMRC has responded with guidance and temporary exemptions. Here, we provide answers to some frequently asked questions around expenses related to equipment, cars and travel.
The Treasury took action in response to the unprecedented situation with a temporary tax exemption that is in effect from 16 March 2020, the date the government recommended working from home, until 5 April 2021.
The exemption ensures that home office expenses do not attract tax and national insurance contribution (NIC) liabilities where reimbursed by an employer. The exemption is designed to support employees who are working from home as a result of the COVID-19 pandemic and need to purchase home office equipment.
To be eligible for relief, the expenditure must meet two conditions:
- The equipment must be obtained for the sole purpose of enabling an employee to work from home as a result of the COVID-19 pandemic.
- The provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer.
However, HMRC has also confirmed that a taxable benefit charge will arise if the ownership is subsequently transferred to the employee.
In addition, HMRC has also confirmed that employees working from home because their workplace shut, or following advice to self-isolate, meet the requirements for 'regular' homeworking. This means that employees are covered by the rules regarding homeworking expenses and can claim £6 a week or £26 a month, either through an employer or by claiming tax relief themselves.
There is also the potential to claim a larger sum if necessary. However, this does involve providing analysis of costs and is more cumbersome. Employees can claim online, by phone or post, or via their self assessment tax return, if they usually file one.
Further guidance can be found here.
Tax and travel
HMRC has updated its guidance information on paying travel and subsistence for employees travelling to temporary workplaces during the pandemic. Where an employee was furloughed when they were travelling to a temporary workplace, the period of furlough is part of the period of continuous work at that temporary workplace (for the purposes of the maximum period of 24 months). The same applies to a period of working from home.
In regard to cars, although most have clocked up little or no mileage during the lockdown, the usual rules do remain in place for furloughed employees and those working at home because of COVID-19. This means a car is still treated as 'available for private use' for tax purposes.
HMRC will accept a car is unavailable in limited circumstances, applying only where COVID-19 restrictions on movement prevent it from being returned to the employer or collected.
Business as usual
In most cases it is business as usual and the normal rules on taxable benefits still apply during the pandemic: for example, the provision of one mobile phone and SIM card per employee, with no restriction on private use. This doesn't count as a taxable benefit.
This applies to a range of equipment providing it meets three conditions:
- It's provided solely to enable the employee to perform the duties of the employment.
- Any private use is not significant.
- It isn't an 'excluded' benefit – such as a car.
The rules on tax relief and home working can be complex. We are happy to advise in detail on the best approach to suit your circumstances. Please contact us for more information.