Taxable Benefits & Expenses When Working From home
Many businesses have employees who are working from home due to coronavirus (COVID-19). This could either be because your workplace remains closed or you are following advice to self-isolate.
You may also be looking to continue to have your employees work from home until the economy becomes a little more stable.
This may mean the way your business operates has changed and you may need to look at taxable elements and any elements which should be expensed.
In this article we take a look at what equipment, services or supplies are taxable if your employees are working from home due to coronavirus.
Note: This does not include employees who are on the Furlough Scheme as effectively they should not be working.
If you provide a mobile phone and SIM card without a restriction on private use, limited to one per employee, this is non-taxable.
Computer equipment (Provided by the employer)
If you provide laptops, tablets, computers, and office supplies then these are also non-taxable if they are mainly used for business purposes and not significant private use.
Computer equipment (Provided by the employee)
If your employee needs to buy home office equipment to allow them to work from home, they will need to discuss this with you in advance.
If you reimburse your employee the actual costs of the purchase, then this is non-taxable provided there is no significant private use.
If you do not reimburse your employee, then they can claim tax relief for these purchases on their tax return or P87 as long as the amount claimed is incurred wholly, exclusively and necessarily in the performance of their duties of employment. The occasions on which an employee would qualify to claim tax relief will be rare, as there are strict conditions to be met and eligibility will depend on the facts at the time.
Your employees will need to keep records of their purchase and claim for the exact amount. For more information on the strict tests that need to be passed in order to qualify for tax relief see the guidance on Employment Income.
If your employee already pays for broadband, then no additional expenses can be claimed.
If a broadband internet connection is needed to work from home and one was not already available, then the broadband fee can be reimbursed by you and is non-taxable.
In this case, the broadband is provided for business and any private use must be limited.
Additional expenses like electricity, heating or broadband
Payment or reimbursement to your employees of up to £4 a week (£6 a week from 6 April 2020) is non-taxable for the additional household expenses incurred when your employee is working from home.
If the claim is above this amount, then your employee will need to check with you beforehand to see if you will make these payments and keep receipts.
Employees needing temporary accommodation for self isolation
If your employee needs to self-isolate but cannot do so in their own home, you can reimburse hotel expenses and subsistence costs, these are taxable.
Employees using their own vehicle for work related matters
You can pay approved mileage allowance payments of 45p per mile up to 10,000 miles (25p per mile thereafter) free of tax and National Insurance contributions.
If you do not pay mileage allowance, your employee can claim tax relief through their Personal Tax Account.
Significant private use
For items which are taxable, exemptions for work related benefits must show that there is no significant private use.
HMRC accepts that where:
- Your policy about private use is clearly stated to your employee and sets out the circumstances in which private use may be made (this may include making the conditions clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences if the policy is not followed).
- Any decision of the employer not to recover the costs of private use is a commercial decision, rather than rewarding your employee. Significant private use should not be based on the time spent on different uses. It should be based on your employee’s duties and the need for them to have the equipment or services provided so they can do their job.
Dealing with HMRC
Any expenses or benefits which are related to coronavirus can be reported on your PAYE Settlement Agreement.
This means you can settle tax and National Insurance contributions on any expenses or benefits, even though the responsibility would usually be on your employee, or on both you and your employee.
This applies to coronavirus related items only, for example, a new desk can go onto the PAYE Settlement Agreement, but a new sofa cannot.
If you are currently payrolling benefits in kind, you may continue to report expenses and benefits through your payroll. You may also continue to report expenses and benefits through P11D returns.
If you need any help ensuring you are correctly allocating expenses and benefits then get in touch.