Coronavirus: employees working from home taxable expenses

UPDATED FOR REVISED HMRC GUIDANCE 

Certain equipment, services or supplies are taxable if your employees are working from home due to coronavirus.

Employers could be affected where their employees are working from home due to coronavirus, either because:

• the workplace has closed, or
• they are following advice to self-isolate

This does not apply to furloughed workers who are eligible for the Coronavirus Job Retention Scheme.

Coronavirus antigen tests

There is a temporary exemption to make sure that employees who are given a relevant coronavirus antigen test by their employer, will not be liable to an Income Tax benefit in kind charge.

The exemption will apply to any relevant coronavirus antigen test provided by an employer, on or after 8 December 2020, until and including, 5 April 2021.

For any relevant tests which have been provided earlier in the tax year, HMRC will exercise its collection and management discretion and will refrain from collecting any Income Tax or Class 1A National Insurance contributions due on the provision of a test.

Coronavirus tests paid for by the employer

Initially added by HMRC to its guidance on 6 July 2020 and then withdrawn the next day, the department had said: "Coronavirus (COVID-19) testing kits or tests carried out by a third party which have been purchased by you [the employer] to provide to your employees, are treated as a taxable benefit in kind on the employee."

In certain settings, such as a care home, regular testing for Covid-19 could be regarded as essential and may even be required as part of the employment.

When this issues was brought to the Chancellor's attention on 7 July 2020, he said he would look into the matter "very quickly".

HMRC guidance at EIM32870 states:

In very unusual circumstances it may be possible to argue that the personal benefit of the medical expenses was merely incidental to the business purpose, see EIM31664. In these cases a deduction can be given. In Prince v Mapp (46TC169), Pennycuick J gives an example of the circumstances in which a deduction may be given:

“Someone…incurs some injury which is trivial in itself and in respect of which he would never otherwise expend money on medical care but which happens to be of vital importance for the purpose of that particular trade or profession.”

So Prince v Mapp could be relied on in some circumstances.

However, on 7 July 2020 the Chancellor wrote to the House of Commons Treasury Committee to confirm that Covid-19 tests in the tax year 2020/21 would be exempt from,income tax and NICs.

Type of equipment, service or supply

Mobile phones and SIM cards (no restriction on private use)

If you provide a mobile phone and SIM card without a restriction on private use, limited to one per employee, this is non-taxable.

Broadband

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.

Laptops, tablets, computers, and office supplies

If these are mainly used for business purposes and not significant private use, these are non-taxable.

Reimbursing expenses for office equipment your employee has bought

If your employee needs to purchase home office equipment to enable 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. They’ll need to keep records of their purchase and claim for the exact amount.

The government is introducing a new exemption effective from 16 March 2020 to ensure employer reimbursements for the cost of home-office equipment expenses are exempt from tax and NICs.

For the expenditure to be eligible for relief, it must meet the following 2 conditions:

• that equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak
• the provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer

The exemption will be conditional on the benefit of any reimbursement in respect of home-office equipment expenses being made available to all of an employer’s employees generally on similar terms.

The exemption is a temporary measure and will apply from the day after the regulations come into force until the end of the tax year 2020-21.

This was first announced by the Financial Secretary to the Treasury on 13 May.

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
• keep receipts

Where an employer does not reimburse the employee, employees can submit claims to HMRC for homeworking expenses, without having to calculate the additional costs from their household bills or keep evidence of those costs.

However, there are four conditions in EIM32820 which have to be met. But where an employee wants to claim more than the flat rate, evidence of additional costs will be needed. 

Employees who complete a tax return can make a claim on the form. Otherwise, a claim can be made on form P87, or by phoning HMRC on 0300 200 3300.

Employer provided loans

A salary advance or loan to help your employee at a time of hardship counts as an employment-related loan.

Loans provided with a value less than £10,000 in a tax year are non-taxable.

Further information on loans.

Temporary accommodation

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.

Further information on accommodation expenses.

Paying or refunding transport costs

If you pay or refund your employee the cost of transport from work to home, this is considered to be a benefit. This is because journeys between an employee’s workplace and home are private journeys.

In some circumstances there is an exemption from paying tax on this benefit. For this to happen, all of the following 4 conditions must be met:

• the employee has to work later than usual, and until at least 9pm
• this happens irregularly
• by the time the employee finishes work, either:
  • public transport has stopped
  • it would not be reasonable to expect them to to use public transport
• the transport is by taxi or similar road transport

Your employees may regularly travel to work in a car with one or more other employees using a car-sharing arrangement. If this arrangement stops because of unforeseen and exceptional circumstances, which are coronavirus related, and you provide transport or reimbursement of the expense of transport from your employee’s home to workplace, this may also be exempt.

The total number of exempt journeys cannot exceed 60 journeys in a tax year. This is a single limit that applies to the late-night journeys and the failure of any car-sharing arrangement, together.

If these requirements are not met, free or subsidised transport is taxable and should be reported through a PAYE Settlement Agreement as a coronavirus related benefit.

Paying travel and subsistence expenses for employees travelling to temporary workplaces

If your employee was furloughed when they were travelling to a temporary workplace, the period of furlough is part of that period of continuous work. A period of working from home will also be part of the period of continuous work.

However the workplace stops being temporary from the date that attendance there is expected to be more than 24 months. Tax and National Insurance contributions will then become liable on any payments of travel and subsistence expenses.

Employees using their own vehicle for business

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.

Further information on approved mileage allowance payments.

Employees using company cars

HMRC has published additional guidance for where a company car is parked at an employee's home.

Your employee may have been furloughed or is working from home, because of coronavirus, and provided with a company car which they still have.

You should treat the car as being made ‘available for private use’ during this period even if your employee is:

• instructed to not use the car
• asked to take and keep a photographic image of the mileage both before and after a period of furlough
• unable to physically to return the car or the car cannot be collected from the employee

Where restrictions on movement applies because of coronavirus and prevents the car from being handed back or collected, HMRC will accept that a company car is unavailable in the following circumstances:

• where the contract has terminated - from the date that the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer
• where the contract has not been terminated – after 30 consecutive days from the date that the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer

The return of keys means that a car cannot be driven in any circumstances even if it is still in the possession of your employee.

HMRC also recognise that following relaxation of coronavirus restrictions, it may take some time to collect cars where contracts have been terminated. As long as your employee continues to have no access to the keys until the car is collected from them, HMRC will still regard the car as being unavailable.

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.

Record keeping

You do not have to keep detailed records of every instance of private use to prove a claim for exemption.

How to report to HMRC

Taxable expenses or benefits

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.

Non-taxable expenses or benefits

Do not report to HMRC.

Taxable benefit charge - returning office equipment

Equipment provided by employer

You may have supplied employees with office equipment so they could work from home. There’s no tax charge when they return the equipment to you, so long as there’s no transfer of ownership.

If you do transfer ownership of the equipment to an employee, at any time, this will become an employee benefit. The charge will be on the market value of the equipment at the time of the transfer, minus any amount the employee may have paid towards the equipment.

Equipment reimbursed by employer

Your employee may have agreed to buy their own home office equipment for use whilst working at home and you have reimbursed the exact expense. Unless you have specified that they must transfer ownership to you, the equipment is owned by your employee.

There is no benefit charge on the reimbursement. There is also no benefit charge if you let your employee keep the equipment as it is something that they already own.

Further reference

The Income Tax (Exemption for Coronavirus Related Home Office Expenses) Regulations 2020

If you would like to discuss these issues, please contact your usual Bishop Fleming adviser, or a member of the Payroll team.