The coronavirus pandemic has accelerated the move towards an agile, remote workforce and the need for businesses to grapple with employment law issues associated with new homeworking models and health and safety considerations.
The employer and employee also need to be clear about the tax implications of working from home. Where expense payments are made to – or benefits in kind provided for – an employee, they are generally taxable on the employee.
However, a number of exemptions apply in the context of homeworking, covering such aspects as employer and employee-provided equipment, homeworking household expenses, broadband and travel. As our agile working and tax webinar – which is part of our series on the changed workplace – highlighted, employers should carefully consider whether any of these apply to their arrangements.
- Employer-provided equipment: Will home office equipment such as computers or laptops be provided by the employer? If it is provided directly to an employee then an exemption may apply. It is important that a policy is adopted on the use of equipment provided for private use, making it clear that the property continues to belong to the employer.
- Employee provides the equipment: What if the employee buys the equipment and is reimbursed by their employer for the cost? Generally, this will be taxable as employment income. A temporary exemption from income tax and National Insurance contributions (NICs) may be available where an employer reimburses the cost to an employee of purchasing home office equipment prior to 6 April 2021 (provided conditions are satisfied). It is hoped that HMRC will extend this exemption, and perhaps even make it permanent, given the seismic shift from the office to homeworking.
- Homeworking household expenses: What about other expenses such as increased electricity and heating costs? An employer can make a payment to an employee for the reasonable additional costs the employee incurs while working from home, provided that the employee is doing so under "homeworking arrangements". These should be properly documented, and to fall within the exemption the employee must, in fact, work from home regularly. An employer can make a flat-rate payment of up to £6 per week tax-free where homeworking arrangements exist, or agree a greater scale rate payment with HMRC.
- Broadband: If an employee already pays for a broadband connection then any reimbursement of the cost of the connection by the employer will be subject to income tax and NICs (as there is no additional household expense as a result of the homeworking arrangements). However, if the employee does not have a home broadband connection and needs such a connection in order to work from home, then the cost can be reimbursed tax free by the employer
- Travel: What if an employee works from home and is occasionally required to travel to our office? The tax treatment of travel expenses is a complex area, involving considerations such as the objective requirements of the job, whether the expenses are incurred in "ordinary commuting", and identifying permanent and temporary workplaces.
Return to work
The shift to homeworking seems set to continue for the foreseeable future. However, employers will also be mindful of managing the return to work, either on a full or partial basis, as the guidance changes and the lockdown ends and restrictions are lifted. What tax incentives are available to employers wishing to encourage a return to work (when it is safe to do so)?
Although the range of tax-efficient salary sacrifice arrangements has been restricted in recent years, a number of important benefits continue to attract tax relief (due to their wider societal benefits), including cycle to work schemes and ultra-low emission vehicles.
Cycle to work
With many employees nervous about using public transport, one option could be to provide a cycle to work scheme. Such schemes are popular, well-established and offer relief from income tax and NICs.
The removal of the £1,000 cap has opened up options for non-standard bikes, such as electric bikes. Note that electric scooters cannot currently be hired under the scheme, although it remains to be seen whether this will change in the future.
Ultra-low emission vehicles
There are income tax and NICs advantages when an employee's salary is reduced in exchange for the provision of an ultra-low emission vehicle (ULEV) as a benefit in kind. An ULEV is a vehicle that emits less than 75g of carbon dioxide for every kilometre travelled (including electric cars).
Other possible tax-exempt benefits an employer may consider providing include workplace parking for cars or motorbikes and workplace charging.
Workplace parking for cars or motorbikes
While employees working in cities or town centres might welcome this option, it is likely to be less attractive for employers with a green agenda.
Employees charging their own electric vehicle at work are not liable to pay tax on the value of the electricity used.
More widely, tax-advantaged employee share plans offer significant tax reliefs and can be tailored to incentivise, reward and retain key employees. Each benefit, scheme and expense has different conditions to be satisfied for tax relief to be available.
HMRC has responded to the changes triggered by the pandemic with new, temporary measures – and no doubt these will be extended or some permanent changes introduced in due course.
With decarbonisation high on the agenda, employers will also be keeping a watchful eye on any measures introduced in relation to electric scooters and other more environmentally friendly ways of travelling.
The next webinar in our Changed Workplace series focuses on agile working and mental health (9.30-10:00 on 25 November).
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