As HMRC has received numerous queries relating to the topic of how taxable expenses and benefits provided to employees due to coronavirus should be treated and subsequently reported to HMRC, new HMRC guidance has been published.
In addition, some amendments have been made to the law to assist employers and employees. Key changes are highlighted below.
With no extension to the P11D filing deadline because of coronavirus, employers must complete all P11D and P11D(b) returns for the 2019-20 tax year by 6 July 2020 as usual. Many employers will be thinking about what they need to report, even though many expenses and benefits due to the coronavirus crisis are likely to fall into the current 2020-21 tax year.
At least HMRC has confirmed that any coronavirus related expenses or benefits an employer is willing to pay the tax and National Insurance contributions (NICs) on can be reported in a PAYE settlement agreement .
Exemption for purchase of equipment when working from home
On 20 May 2020, regulations were made to introduce a temporary exemption from income tax and NICs for expenses reimbursed by an employer to an employee for the purchase of equipment that is obtained for the sole purpose of enabling the employee to work from home due to coronavirus. The exemption is available even if the expenses are reimbursed, provided that had the equipment been provided directly by the employer to the employee, the employer's provision of that equipment would have been exempt from income tax under existing work accommodation and supplies rules.
The regulations came into force on 11 June 2020 and apply to amounts reimbursed on or after that date but before the end of the 2020-21 tax year.
For other aspects of home working expenses, our guidance on the relevant regulations is available, which links to HMRC’s working from home expenses rules, covering which expenses are taxable and which are not where employees work from home as a result of coronavirus.
Paying or refunding transport costs
Where employers pay or refund their employees for the cost of transport to and from work, either because public transport is not available or because they believe it is not safe to use it, this is classed as a benefit if it relates to travel to and from the employee’s normal place or work (or a similar journey) as an employee’s journeys between work and home are private journeys. However, there are some situations which result in an exemption from paying tax and NICs on this benefit. These are covered in what is generally known as the ‘taxi exemption’.
Employees may frequently travel to work in a car with one or more colleagues using a car-sharing arrangement. Where such an arrangement ceases due to unforeseen and exceptional circumstances, including situations relating to coronavirus, and an employer provides transport or reimbursement of the expense of transport from an employee’s home to their workplace, this benefit could potentially be exempt.
The exemption is intended to recognise that an employee’s usual car-sharing arrangement may be unavailable due to unforeseen circumstances and also that late night journeys may be necessary from time to time, but the total number of exempt journeys cannot exceed 60 in any one tax year.
If these conditions are not met, any free or subsidised transport is taxable and, as such, should be reported. Employers can use a PAYE settlement agreement to report it if they wish, on the basis it is a coronavirus related benefit .
It should be remembered, however, that no income tax or NICs (for either the employer or the employee) are payable if transport is provided between home and work for a disabled employee, or if the employer pays for such transport or reimburses the expense incurred.
Some employers, in order to keep staff safe and well, may provide employees with temporary accommodation near a workplace.
Where an employee is working at a permanent workplace and their employer is providing living accommodation for them due to the outbreak of coronavirus, the associated cost will generally be taxable and subject to NICs .
However, exemptions apply where, for example, the employee is a warden of a sheltered housing scheme and is residing at the premises so they can be on call outside normal working hours.
If an employee is working at a temporary workplace and is provided with living accommodation due to coronavirus, then tax relief is available.
If an employee cannot go home due to coronavirus, an employer can opt to reimburse their subsistence and lodging expenses if, for example, they stay in a hotel. These expenses are taxable and should be reported via payroll or covered in a PAYE settlement agreement.
For more information, please get in touch with Susan Ball.