August 12, 2020
The COVID-19 pandemic has forced many countries to impose lockdown. Many businesses have closed offices and asked their employees to work from home. As a result working from home is no more a novelty now. However, for many employees and employers this new trend has brought additional expenses and arrangements to make. Therefore, the UK government along with other reliefs has announced an increase in the Homeworking Allowance from £4 to £6 a week in the Spring Budget with effect from 6th April, 2020.
In this article let’s check on tax implications of these reliefs for employers and employees in their tax assessments.
As an employer you will be affected if any of your employees are working from home due to COVID-19 pandemic; either because:
Please note that Furloughed workers who are eligible for the Coronavirus Job Retention Scheme are not covered.
Types of equipment, services and expenses included:-
Mobile phones and SIM cards – non-taxable if employer provides without a restriction on private use, limited to one per employee.
Broadband – if employee already pays for broadband then employer cannot claim expenses.
If a broadband connection is required that means the employee has started working from home and connection was not available then employer can reimburse the connection fee which will be non-taxable. Here the private use must be limited.
Laptops, tablets, computers, and office supplies – non-taxable if these are mainly used for business purposes without any significant private use.
Office equipment bought by an employee – if an employee needs to buy office equipment to work from home then the employee and the employer have to agree on this in advance. If the employer reimburses employee the actual cost of purchase and there is no significant private use then then it is non-taxable.
If employer do not reimburse the cost then employees can claim tax relief for the purchases in their self-assessment tax returns or on P87 provided the use is completely related to work of employment. The employees need to keep records of exact claim done.
Additional expenses like electricity, heating and broadband – if employer pays or reimburses to employees of up to £6 a week (£4 a week before 6 April 2020) then no tax to pay for employers provided expenses are incurred by employees for working from home.
However, if an employee claims more than £6 a week then the employee will have to –
Loans or salary advances to employee – employment related loans up to £10,000 in a tax year are tax free.
Temporary accommodation – reimbursement of hotel expenses and subsistence costs are taxable. This may happen if any employee needs to self-isolate but cannot do so in their own home.
Mileage Allowance – Employers can pay the approved mileage allowance of 45p per mile up to 10,000 miles (25p per mile above 10,000 miles) free of tax. If any employer does not reimburse up to the approved mileage allowance then employees can claim mileage cost relief in their self-assessment.
For taxable items, exemptions for work related benefits must show that there is no significant use. It should not be based on time spent on different uses; instead it should be based on employees’ duties and the need for them to have the equipment or services so that they can do their employment related work.
How to report
Employers need to report taxable expenses and benefits. Any COVID-19 related expenses and benefits can be reported on your PAYE Settlement Agreement. This means you can settle tax and National Insurance contributions on any COVID-19 related expenses or benefits, even though the responsibility would usually be on employee, or on both employer and employee.
Employees may be allowed to reduce their earning by deducting the costs of working from home if the expenses are incurred totally and inevitably to perform employment duties.
The expenses can include –
- Costs of gas and electricity consumed while a room is being used for work – any additional units used
- The metered cost of water used in the performance of employment duties.
- The unit costs of business telephone calls. It includes dial up internet access.
Employees may find it difficult to calculate the exact amount of expenses. Therefore, HMRC will instead allow a deduction of £6 per week or £26 per month (cost of business telephone calls not allowed). If any employee decides to claim more than the standard rates then receipts and records must be kept. The amount of claim will be restricted to expenses that the employer has not reimbursed. Employees can claim deductions for the expenses in self-assessment tax return.
We at Doshi have all the expertise of tax assessments to help you understand all the terms conditions for claiming the reliefs as an employer as well as an employee. Please contact us to know everything in detail about these reliefs and how it can save your PAYE and self-assessment tax bills.