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Coronavirus and the subsequent lockdown has forced many employees to work from home. Consequently, additional costs will be incurred by employees, particularly for those that were predominantly office based before the crisis. The employer can choose whether to reimburse these costs or not.
Where employers are reimbursing costs, tax relief may be claimed directly from HMRC. However, if employees choose to work from home, when they could work from the office, they are treated differently and cannot claim tax relief from HMRC if their employer does not reimburse their expenses.
Under normal rules, any reimbursement for expenses would have tax consequences. However, the treasury has intervened and introduced a temporary rule change, which means employees can be reimbursed tax-free for expenses incurred whilst working from home until 5 April 2021.
As announced by the Financial Secretary to the Treasury on 13 May 2020:
"To support employees who are working from home and need to purchase home office equipment as a result of the coronavirus outbreak, a temporary tax exemption and National Insurance disregard will come into effect to ensure that the expense will not attract tax and NICs liabilities where reimbursed by the employer. The expenditure must meet the following two conditions to be eligible for relief:
- That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and
- 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 (under section 316 of ITEPA).
The exemption is a temporary measure and will have effect from the day after the regulations come into force until the end of the tax year 2020/21.
HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any reimbursed payments made from 16 March 2020 (the date the government recommended working from home) to the date these regulations take effect.
This measure is being announced outside the normal fiscal process in order to ensure that employers and employees are able to effectively manage their working from home arrangements as soon as possible."
Tax treatment of expenses under the temporary rules
When expenses are reimbursed by employers, the tax treatment will depend on the nature of the expense. For example:
- Laptops/computers – if these are predominantly used for business services, these are non-taxable
- Mobile phones – if employers provide a mobile phone without a restriction on private use, this is non-taxable
- Office equipment – if employees need to purchase office equipment and it is not used for significant private use, this is non-taxable if reimbursed by the employer. If the costs are not reimbursed, employees can claim tax relief for these purchases on their tax return provided the amount claimed is incurred exclusively in the performance of their duties of employment
- Electricity, heating and broadband- reimbursement to employees of up to £6 is non-taxable for the additional household expenses incurred when employees are working from home
- Broadband - if an internet connection is needed to work from home and one was not already available, then the broadband fee can be reimbursed by the employer and is non-taxable.
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