- Equipment provided in the home
- Tax treatment of equipment when employees return to the office / usual place of work
- Household expenses
- Practical considerations for the employer
- HMRC guidance
Due to a sudden unprecedented move for people to work from home temporarily during the coronavirus (COVID-19) pandemic, many employers, employees and individuals have queries around the income tax and NIC treatment in relation to costs incurred in relation to working from home.
An announcement was made on 13 May stating that a temporary exemption will be made for home office expenses reimbursed by employers. The exemption will be applied on a discretionary basis for expenses incurred from 16 March 2020. Legislation has been published as SI 2020/524 and SI 2020/525 with an official commencement date of 11 June. The legislation requires that, as per ITEPA 2003, s 210(2), the exemption will apply only where the equipment expenses are made available to all employees generally on similar terms.
HMRC has published guidance for employers on which expenses are taxable if an employee works from home due to coronavirus. It covers items such as mobile phones, broadband and laptops. The guidance confirms that any expenses or benefits that are related to coronavirus can be reported on the PAYE settlement agreement (PSA) if the employer wishes to settle the tax and NIC on them. It has been updated to reflect the announcement above on the new temporary exemption.
The CIOT has released a detailed guidance note on all the various types of expenses relating to working from home, including costs of equipment, supplies and travel, giving their view on the technical aspects of these items.
Equipment provided in the home
Where an employer provides an employee with equipment to carry out the duties of employment, there should be no income tax, NIC or reporting requirements. This exemption applies as long as the employee:
- is provided with the equipment solely to enable the performance of duties
- has only insignificant private use of the equipment provided
ITEPA 2003, s 316
This might include, for example, computers, desks, chairs, stationery and so on for the home, which the employee might usually use in the workplace but now needs in order to be able to work from home on a temporary basis. Home alterations are specifically excluded and would therefore be subject to tax and NIC in full.
There is some room for interpretation here on whether a temporary requirement to work from home meets the requirement of being ‘provided with the equipment solely to enable the performance of duties’. In addition, where desks, chairs and computer screens are provided at home, the employee may make more than ‘insignificant private use’, for example to use with their own personal computer.
According to the HMRC guidance, laptops, computers and office supplies (eg paper and ink) are not subject to tax or NIC.
As the exemption in ITEPA 2003, s 316 applies where the employer provides the equipment and not where an employee purchases the equipment for themselves, the following scenarios arise:
- the employee purchases the equipment on behalf of the employer and it is agreed that the employer owns the equipment but it is not practical for the employer to physically provide it. In our view, this meets the requirement of being provided by the employer and not the employee purchasing equipment for themselves and is therefore eligible to be considered for the exemption in ITEPA 2003, s 316
- the employee purchases the equipment and claims reimbursement from the employer. As announced by the Government on 13 May, a temporary exemption is applied by SI 2020/524 and SI 2020/525, with an official commencement date of 11 June, but on a discretionary basis for expenses incurred from 16 March 2020. The legislation requires that, as per ITEPA 2003, s 210(2), the exemption will apply only where the equipment expenses are made available to all employees generally on similar terms. This exemption applies provided the equipment is for the sole purpose of enabling the employee to work from home as a result of the pandemic and it would have been exempt (under ITEPA 2003, s 316) if the employer had provided it directly to the employee. This supersedes earlier HMRC guidance that this scenario would be outside the exemption and that the costs should be reported on a PSA. The new exemption is temporary and will remain effective until 5 April 2021. HMRC guidance confirms that there is no benefit charge if the employee is allowed to keep the equipment as they already have ownership of it
- the employee purchases the equipment and the employer does not offer a reimbursement. For example, many people may buy an office chair as they do not have a suitable chair to avoid back problems. It is unclear whether HMRC’s view will be that the employee can claim a deduction via the tax return or form P87. This depends on whether the test in ITEPA 2003, s 336 is considered to be met where the employer has no involvement. Given their interpretation where there is reimbursement, it appears unlikely that HMRC will accept this
Tax treatment of equipment when employees return to the office / usual place of work
In usual circumstances, say at the end of an employment, equipment provided by the employer to the employee might either be transferred to the employee and taxed appropriately or returned to the employer (there being no tax or NIC to be paid in this case). However, employers are unlikely to have space or need for this extra equipment that has been purchased in very unusual circumstances.
The employer is also likely to want to avoid the employee being charged to tax or NIC on equipment they have not had a choice about in terms of being able to work safely and effectively (an obvious point being the potential for back problems if there is no proper office chair).
Please note: this section does not apply to equipment already owned by the employee, but rather where the employer owns the equipment and has made it available for the employee.
Where employees return to office work and the equipment provided for working at home by the employer is kept by the employee, HMRC has confirmed that this will be a taxable benefit. Employers are required to:
- include the value of transferring the assets in a PSA on a grossed up basis (which will be very expensive for the employer), or
- tax the employee on the asset(s) under ITEPA 2003, Part 3, Chapter 10 (with the cash equivalent depending on whether there has been a transfer of ownership). This would cause difficulties in employee relations and perhaps employment law issues. It is possible that extra pay could be given to cover this tax; however, this cost will then be similar to including the items on a PSA, but more complex from a payroll perspective, or
- request the return of all the equipment, which would presumably cost a great deal to transport, and then either give away, sell or store the equipment, taking time and effort away from business activities
It is sensible for employers to prepare for the potential for these extra costs and consider carefully where they will provide equipment and reimburse costs, in addition to communicating this clearly to employees as soon as it is practical to do so in order to manage both employee relations and costs to the business.
Currently, employers may make contributions towards an employee’s home expenses under ITEPA 2003, s 316A. In order for the exemption to apply, there must be ‘homeworking arrangements’ in place and the employee must work at home regularly under those arrangements. See the Homeworking guidance note for the meaning of ‘homeworking arrangements’. HMRC has published guidance in relation to expenses.
There have been queries about whether these apply to temporary circumstances, see the ATT press release from 12 March 2020. HMRC has clarified to the professional bodies that, as there is no requirement in the legislation for 'homeworking arrangements' to be for a specific amount of time, they will consider employers requiring their employees for either a limited or indefinite period due to a temporary closure of business premises, it accepts that the tests for 'homeworking arrangements' are met.
Amounts can be paid in respect of the reasonable additional costs that an employee incurs. This exemption only applies to amounts reimbursed by the employer and not to costs borne by the employee.
The exemption is designed to cover the additional costs of things such as increased heating, lighting or electricity. It does not cover expenses that the employee incurred in order to put them in a position to work at home, such as mortgage interest payments or building alterations. The cost of additional equipment that the employee has to provide to work at home is covered above and not in this section.
The employer may choose to reimburse based on HMRC-approved scale rates without the employer being required to have records to show that additional costs were incurred. For tax years from 2012/13 to 2019/20, these amounts are £4 per week or £18 per month.
The Government announced that from 6 April 2020, the tax and NIC exempt amount that can be paid towards the additional costs of working from home is increased from £4 to £6 per week (£26 per month). As a result, employers can pay eligible employees an additional £2 per week to cover business costs when working from home.
OOTLAR, para 2.11
Alternatively, the employer may choose to reimburse the full exact amount of the employee’s extra costs. In this case, the employee and the employer must keep records to substantiate the reimbursement. This may prove difficult as the costs incurred need to be proven.
Practical considerations for the employer
In addition to the tax and NIC treatment of expenses, employers need to think ahead and plan for the potential disruption to their workforce. They may now see employees having trouble getting to their normal place of work, notably because of illness but also because of self-isolation and other unexpected events (such as the closure of schools).
Employers should assess their employees’ ability to work remotely, taking into consideration their IT setup and equipment at home, and review their ‘working from home’ policies if these are already in place.
For detailed technical commentary on ‘homeworking’, see the Homeworking guidance note.
HMRC has released guidance on benefits provided to employees during the coronavirus pandemic. This addresses benefits not only in relation to working from home, but also travel, loans and living accommodation.
The guidance on working from home expenses has been updated to reflect the 13 May announcement about an exemption for equipment in the home reimbursed by employers, and to confirm the treatment of equipment provided by the employer and retained by the employee.