Employees working from home during coronavirus restrictions
Justine Riccomini clarifies the position where employees have been asked to work from home and what the tax consequences are of the payment of allowances and purchase of necessary equipment.
Working from home
The Government has specifically asked people to work from home wherever possible during the COVID-19 pandemic. Many employees will continue to be paid if they are able to work effectively from home, and so it is important to make sure that they can do this.
Paying a working from home allowance
For people who “regularly perform some or all of the duties of employment at home”, there is already an allowance in place which can be paid free of income tax and NICs. This allowance was increased from £4 to £6 per week (or from £18 to £26 per month) from 6 April 2020. The relief does not apply to informal working from home arrangements. Usually, HMRC expects that some form of contractual arrangement would be in place to say that the employee is wholly or partially home-based to qualify.
The allowance, which is written into s.316A ITEPA 2003 as introduced by s.137 FA 2003, is meant to cover additional household expenses such as light and heat where an employee works at home regularly. A mirroring arrangement is in place for NICs under SI 2001/1004 of the Social Security Contributions Regulations. The term “regularly” is set out in HMRC Guidance.
If an employer wishes to pay more than the allowance, they can do so but they would need to put the excess through the payroll for income tax and NICs purposes.
HMRC has stated that it will accept that individuals affected by COVID-19 can claim the allowance where either the employer's workplace has closed or the employees are self-isolating. This means that the existing rules on working from home have been temporarily extended.
Bespoke Rates
It is possible for employers to agree bespoke rates of payment to employees with HMRC, but these need to be quantified using evidentiary support such as detailed records of expenditure.
Tax Relief
Employees can claim tax relief on household expenses directly from HMRC if they consider the tax-free allowances paid by their employer to work from home are not sufficient to cover their own costs. Again, suitable evidence would need to be provided to demonstrate that the qualifying conditions at s. 336 ITEPA 2003 are met (i.e. the “wholly, exclusively and necessarily in the proper performance of the employee’s duties” test)
Other expenses incurred whilst working from home
Employers can also reimburse some other costs of employees who need to work from home during the lockdown period. It is important to distinguish between:
- the provision of equipment to enable the employee to continue working from home (i.e. the employee takes equipment home at the beginning of the lockdown period), in which case, there is no reportable benefit in kind assuming no significant private use takes place, or
- the employee realises they need additional equipment such as an office chair whilst they are on lockdown and needs to purchase it. They go out and buy it with their own funds and claim it back from the employer – in which case, the amounts need to be declared on a PSA.
- the employee realises that they need additional equipment and there is a facility for the employer to order the equipment and pay for it centrally – in which case, there is no need to declare the item on the PSA, assuming the employee returns the equipment purchased back to the employer afterwards.
- note also that the provision of equipment to a disabled employee to enable them to carry out their work is exempt.
The self-employed
Please note that this article covers payments to employees only. The self-employed are entitled to a different set of allowances depending on the number of hours they work from home each month.
Further reading
The CIOT has also published a very helpful pamphlet on working from home.