Working arrangements abruptly changed on 23 March for millions of people when the country went into lockdown and we were all told we must work from home wherever possible .
Benefits in kind
Employees will be familiar with the fact that where they receive a ‘benefit in kind’ from their employer, its value is subject to tax. For these purposes, benefits in kind include the reimbursement of expense payments, although deductions are available for expenses incurred for business purposes.
Special rules for homeworkers
Employers will know that some expenses payments and benefits are exempt from tax. They can make tax and National Insurance contributions (NIC) free payments to employees in respect of reasonable additional costs incurred for working at home if the employee is a ‘homeworker’; ie where there is an arrangement under which the employee must work at home on a regular basis.
HMRC has confirmed that where employees have to work from home because of coronavirus issues, those employees will be homeworkers and will be able to benefit from these rules. Thus, the special tax rules for homeworkers are suddenly relevant to large parts of the UK workforce.
From 6 April 2020, employers can pay £6 per week to each homeworker tax free and without the need to have proof of expenses. The purpose of this payment is to compensate homeworkers for additional household expenses incurred due to working at home as opposed to a place of work; eg to cover the additional heating or lighting costs. If employers pay more than £6 per week, the employee will have to provide evidence of bills to justify the additional amount for the excess to remain tax free. Homeworkers can also claim tax relief for homeworking expenses that are not reimbursed by employers but must support such claims with receipts.
Provision of assets
Care should also be taken when providing additional furniture or equipment that employees may need to work at home. The usual tax rules still apply – if the employer provides an asset at undervalue or lets the employee keep an asset that is no longer required, a benefit in kind arises.
Of course, assets provided by an employer solely to be used in carrying out the individual’s employment duties are exempt. Consider where the employer provides an office chair for use at home. If there is no private use, there is no benefit in kind. But if there is more than insignificant private use , or the employee keeps the chair after returning to office working when the lockdown is over, a benefit in kind will arise.
We can see from the above that our tax system has found ways of providing relief for certain costs incurred by homeworkers. HMRC has taken the welcome approach of confirming when homeworker status applies during the lockdown. But, as is often the case, the rules are complicated and can easily trip up the unwary.
For more information please get in touch with Rachel de Souza.