Employment tax easements slowly revert to original rules post-COVID
Justine Riccomini sets out the various employment tax easements which were introduced during the COVID-19 pandemic and explains what the tax treatment of them should be from 5 April 2022 and 5 April 2023.
After lockdown was announced in March 2020, ICAS and other professional bodies collectively lobbied HMRC for some tax exemptions to be created around the certain necessary activities such as COVID-19 tests, vaccinations and working from home arrangements. Cycle to work, car sharing and optional remuneration were also affected by the lockdown restrictions.
HMRC policy teams responded positively and set about creating the necessary legislative provisions and guidance which would create easements while employers and employees were living under COVID-19 restrictions.
The main provisions
Several items which would normally be included in the Benefits Code as taxable on the employee were relaxed under a power available at Section 210 ITEPA 2003 to exempt minor benefits as & when the need arises. A table of these provisions is below. Now that covid restrictions have been largely eased, HMRC has changed some of its stances so that the items revert to being taxable benefits again – some from 6 April 2022 and some from 6 April 2023
|Item||Original position pre-COVID||Position from April 2020 and/or 2021 and guidance||Position from April 2022 and guidance|
|COVID TESTING: PAID DIRECTLY BY ER OR REIMBURSED TO EE||N/A|
CORONAVIRUS (COVID-19) TESTS
Each of provision, payment and reimbursement are exempt.
The position from April 2020 continues to apply for 2022/23 due to
|PPE – PROVIDED OR REIMBURSED BY ER||N/A||PPE is treated as exempt from income tax and NICs, where provided by employers.|
The employee cannot obtain tax relief on any PPE purchases they make. The relief applies only where PPE is provided or reimbursed by the employer.
|The same treatment applies on an ongoing basis.|
|WORKING FROM HOME – TAX RELIEF ON ADDITIONAL (USUALLY HOUSEHOLD) EXPENSES CLAIMED BY EE FROM HMRC||Section 336 ITEPA 2003 – could be claimed where EE is contracted to be home based, incurs additional (usually household) expenses (e.g. heat, light) and ER does not pay the weekly or monthly home working allowance at||During COVID, the choice of working from home was removed for many office-based and some other workers. This meant that more employees could claim that they had incurred expenses which met the “wholly, exclusively & necessarily” tests as set down in S.336 ITEPA 2003. Employees could claim tax relief for the whole year simply by working at home for one week. See EIM 32790 example 12 (“Amber”)|
The easement ends on 5 April 2023 for anyone who has to work at home for at least one week in that tax year. For anyone else, the position has reverted to what it was prior to the lockdown announcements in April 2020 and fewer employees are therefore able to claim tax relief on additional expenses incurred by working from home unless their home is classified as a permanent workplace.
Claiming income tax relief employment-related expenses from 6 May 2022
|WORKING FROM HOME – ER REIMBURSES EE FOR ADDITIONAL (USUALLY HOUSEHOLD) EXPENSES INCURRED||Section 316A ITEPA 2003|
Section 316A ITEPA 2003 provides an exemption where employers pay employees for the additional expenses incurred when working from home.
HMRC Guidance says: Additional household expenses
If you cover the cost of additional household expenses for an employee who works from home, you do not have to report or pay tax if both of the following apply:
1. they are working at home as agreed with you and they regularly work from home under those arrangements
2. the amount you give them is not more than their additional household expenses or the amount you give them is not more than the current weekly limit (£6 a week or £26 a month from 2020-21)
|Where EE works from home even if only for part of the week under hybrid working arrangements, this exemption is still available. See the definition of home working arrangements as set out in later paragraphs of this article.|
|WORKING FROM HOME – ER REIMBURSES EE FOR PURCHASING OFFICE EQUIPMENT FOR THEIR OWN HOME||Section 316 ITEPA 2003 exemption did not apply to this method of provision. Instead, the purchase of office equipment by the employer which the employee used at home was covered by the transfer of assets legislation at section 206 ITEPA 2003 in the event the employee was allowed to keep it, or by the assets made available for private use without transfer legislation at section 205 ITEPA 2003 where the employee’s main use of it is deemed to be for a private purpose.|
Income Tax (Exemption for Coronavirus-Related Home Office Expenses) Regulations 2020 provided a temporary exemption for employers to provide the necessary equipment to allow employees to work at home in accordance with Health & Safety regulations.
HMRC guidance says: Equipment your employee bought during coronavirus (COVID-19)
You can reimburse your employee for equipment they bought to work from home because of COVID-19. Until 5 April 2022, you do not have to pay tax on it if the employee:
This easement ended on 5 April 2022 as employees who work from home can now access the employer’s premises and obtain the necessary equipment to work from home from there, free of charge, where necessary, or the employer can have it sent to the employee’s home*.
Agent Update Issue 94 confirmed this position.
|WORKING FROM HOME – ER PURCHASES AND PROVIDES EE WITH THE NECESSARY EQUIPMENT TO WORK FROM HOME||Section 316 ITEPA 2003|
HMRC Guidance says: Equipment you provided during COVID-19
You may have supplied employees with office equipment so they could work from home. You do not have to pay tax on this as long as they return the equipment to you*.
|HYBRID WORKING ARRANGEMENTS – TRAVELLING EXPENSES||N/A||N/A|
Update to Hybrid Working: Employment Income Manual Guidance – HMRC says:
More employers are offering hybrid working arrangements and we have updated guidance within the Employment Income Manual to reflect this. There have been no changes to the relevant legislation or policies.
We have introduced new signposting pages for travel expenses to enhance navigation across the existing guidance and to highlight pages that are most appropriate to those working under hybrid working arrangements. These can be found at EIM31801, EIM31802 and EIM31803.
We have made amendments to guidance on the tax treatment of certain homeworking costs and equipment, as well as the homeworking deduction, to provide certainty of our view on the application of such rules under hybrid working arrangements. The guidance at EIM21611, EIM01471, EIM01472, EIM32790, EIM32795 and EIM32810 has been amended.
|FLU VACCINATIONS||Flu vaccinations have traditionally been available free of charge to eligible UK citizens, but there was confusion around these and the COVID-19 vaccination programmes during lockdown and some employers were willing to pay for them for their employees.|
For all other employees who do not qualify for a free flu vaccine, voucher schemes were made available to ensure that they can receive a flu vaccine from their employer free of tax and NICs. Alternatively, where voucher schemes are not available, employers can use a PAYE settlement agreement (PSA) to meet the tax and NICs liability for their employees. We therefore encourage employers to support employees by either providing flu vaccine voucher schemes, or by using a PSA.
Therefore, in light of the above, we are not looking to make any policy changes at present to extend the tax exemption to flu vaccine reimbursements.
|This continues to apply.|
|CYCLE TO WORK||Section 244 ITEPA 2003|
Due to the impact of the coronavirus pandemic, in December 2020, the UK government announced a time limited easement. The easement was for employees who, on or before 20 December 2020:
Where eligible, employees would not have to meet the ’qualifying journeys’ condition until after 5 April 2022.
|The original rules of the scheme now apply once more. As of 5 April 2022, all employees on an existing cycling scheme need to meet the normal conditions, including the ’qualifying journeys’ condition.|
|OPTIONAL REMUNERATION ARRANGEMENTS||Section 69A ITEPA 2003||HMRC updated its draft guidance on the changes to the Optional remuneration arrangements rules to reflect that an OpRA agreement is not regarded as ‘varied’ where the variation is caused by COVID-19. HMRC has made the same change in its guidance on Salary sacrifice for employers.||This principle still applies, however now that lockdowns have finished and employees are returning to work, it is highly unlikely that this would currently be accepted as a reasonable excuse to vary a contract, unless the individual was seriously ill with COVID-19.|
|CAR SHARING||Employees could choose to car share to commute to work prior to COVID-19 – this was outside of the benefits in kind regime unless the employer paid for the costs (unless the bussing employees to work provisions applied at Section 242 ITEPA 2003 and SI 2002/205).||HMRC confirmed that an exemption can apply for journeys paid or provided by an employer where an employee's car sharing arrangements fail due to unforeseen circumstances – and those circumstances are coronavirus related.||The usual car sharing rules are now back in place following the end of lockdown and requirement to wear masks in England. This means that an employer can no longer pay an employee’s commuting costs without this being taxable through payroll if reimbursed or as a benefit in kind if paid directly (subject to the exemptions available on bussing employees to work).|
*Note however that the provision of employer-owned assets can incur a taxable benefit charge under the transfer of assets provisions at Section 206 of ITEPA 2003, where the employee is allowed to keep the asset.
A reminder of the definition of ‘Homeworking Arrangements’ under Section 316A ITEPA 2003
HMRC’s internal manuals state:
“There is a definition of ‘homeworking arrangements’ in section 316A(3). You can accept that there are homeworking arrangements where 2 tests are met:
- there must be arrangements between the employer and the employee
- the employee must work at home regularly under those arrangements
“The arrangements need not be in writing but usually will be. They do not need to apply to all employees. The exemption does not apply where an employee works at home informally and not by arrangement with the employer.
“For example, it will not apply where an employee simply takes work home in the evenings. It applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises. The exemption may also apply where the arrangement involves hybrid or flexible working.
“You should accept that an employee works at home regularly where working at home is frequent or follows a pattern. For example, where an employee agrees to work 3 days each week on the employer’s premises and 2 days at home you should accept that the work at home is regular. This will be so even if the days on which the employee works at home vary from week to week.”
Employers and agents should be mindful of the easements and the end dates to ensure that the original regulations in relation to these items apply once the easements have ended, where appropriate.
The Employer Bulletin April 2022 edition contains an article entitled: “Working from home: Claiming Tax relief from April 2022”.
If you wish to contribute to the debate…why not contact the ICAS tax team on firstname.lastname@example.org? Or consider helping the tax department in its policy work by joining a tax committee as a volunteer.