Tax issues need to be high on the "to be considered list" for businesses thinking about a move to hybrid working. We have chosen our top four issues for businesses to be aware of and to factor into their future workforce and workplace planning:
Where expense payments are made to (or benefits in kind provided for) an employee, they are generally taxable on the employee. However, there are a number of exemptions which apply in the context of homeworking. Employers should carefully consider whether any of these apply to their arrangements if considering, now, a move to permanent working from home models:
- If the employer provides equipment such as a laptop, or phone directly to their employee, then an exemption may apply. A policy should be adopted on the use of equipment provided for private use, making it clear that the property continues to belong to the employer.
- Where the employee buys equipment and is reimbursed, this will generally be taxable as employment income. However, a temporary exemption from income tax and national insurance contributions may be available where an employer reimburses the cost to an employee of purchasing home office equipment (provided conditions are satisfied).
Home equipment includes a laptop, desk, or necessary computer accessories – tools to enable employees to perform their role from a home environment. One of the main conditions of this exemption is that the equipment must be obtained for the "sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak". This exemption only applies where the reimbursement of office equipment expenses is made available to all employees on similar terms. The exemption looks likely to apply until 5 April 2022.
- 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 employee can otherwise claim tax relief from the government for the cost of working from home. This is currently calculated at £6 per week for the tax year 2021/2022. However, if an employer is making payments for additional costs incurred while working from home, the employee cannot then also claim the tax relief. Employers should ensure that this is clearly set out for employees.
The move to hybrid working may involve changes to travel arrangements, with employees working from a variety of places (including overseas in some cases). 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. Should the employer reimburse more than the employee’s necessary costs, this extra amount will be treated as earnings, and therefore PAYE tax and NICs would have to be deducted from their salary in respect of those "extra" earnings.
3. Working overseas
Where employees have moved to working overseas, employers may be required to operate payrolls and pay tax outside the UK. While there has been some Covid-related leeway here, this needs to be considered going forwards where working abroad has, or will cease to be, a temporary state of affairs. We are seeing businesses fall foul of this and continue to operate UK payroll in respect of such employees.
Employees may suffer unexpected tax liabilities and compliance burdens to regularise their positions. For businesses this can be administratively difficult where employees are working permanently from a host of different jurisdictions – as is the case with "working from anywhere" models where there are no time parameters around how long employees are permitted to work abroad from their destination of choice.
Working abroad may also create social security implications in the other country, or being liable to pay certain local taxes, and the employer may have reporting obligations with regards to the employee. Even if the employee will not be subject to tax in the jurisdiction, the employer may still need to register the employee with the tax authorities or register as an overseas employer with the tax authorities.
4. Ongoing working abroad
Ongoing working abroad may also expose the business to wider tax liabilities, including the risk of creating a permanent establishment for the business itself (meaning it may then be liable for business taxes in that jurisdiction), depending on the nature of the work being undertaken overseas.
All of the above need to be factored in at the planning stage. We have seen some businesses feature in headline-catching announcements around offering ultimate flexibility to employees but then have to pull back from this once the realities of these issues are played in. Instead, taking the above into consideration at planning stages means that permanent hybrid working arrangements can reflect the blueprints rather than be an adaptation of initial proposals.
This article was first published by EG – @EGPropertyNews – on 21 July 2021. It is reproduced with their permission.