While the COVID-19 pandemic may be retreating in the UK, at least for the moment, the trend to homeworking it triggered may be here to stay. Businesses need to be prepared for tax changes that come with this new way of operating, was the conclusion of a latest event held by top ten accountancy firm Azets.
While some employees have continued to go into offices, many more are still working from home, and some will never return to the workplace. However, it’s likely, according to Azets, that there will often be ‘hybrid’ arrangements, where staff work partly from home and partly in the office.
Interestingly, in a poll of nearly 500 SME attendees at two webinars held on the subject, around 10.7% of those who responded said that their employees have been mostly home-based during the pandemic, but once restrictions are lifted they will return to the pre-pandemic workplace, while approximately 42.2% said that post restrictions their employees will work more flexibly and be based largely from home. In addition, 34.25% of respondees said that their businesses would have a mix of homeworking for some employees with others still going into the workplace, and 12.8% told Azets that employees had come into the workplace during the pandemic and would continue to do so.
So what do businesses now need to know as regards tax in this new environment? In a webinar held on 13 May, Azets warned businesses that they need to consider HMRC rules around homeworking when it comes to claiming expenses. Where an employee is working from home due to the workplace closing, or while self-isolating, HMRC will accept that a homeworking arrangement is in place for that period.
However, Rio Brookes-Gibbs, employment tax specialist in Azets’ Southampton office flagged how, in order for a homeworking arrangement to exist, two tests have to be met. Firstly, there must be an arrangement between the employer and the employee. Secondly, the employee must work at home regularly under those arrangements.
Brookes-Gibbs commented: “The arrangement does not need to be in writing but we would recommend that it is. Employers can pay their homeworking staff a weekly expenses allowance of £6.00 – which is free of tax and national insurance (NI) – and no records are needed. Or, employers can pay actual reasonable costs of, for example, gas, electricity, water rates, for the work area, but HMRC may want to see evidence that the costs are fair. If employers want to pay more, they can, without any evidence, but this will be subject to tax and NI via the payroll.”
The good news is that neither tax nor NI is incurred where an employer provides office equipment necessary for an employee to perform their work duties, although any private use must be insignificant. This typically includes IT equipment, desks, chairs and office stationery. The offer must be made available to all employees generally on similar terms. However, costs in relation to building alterations or the construction of office spaces at the employee’s home are not covered by this rule.
Employers who provide workers with mobile phones, where private use is insignificant, are also exempt from paying tax and NI on these. In addition, where a second landline is installed for an employee at home and is restricted to business use, this can also be tax and NI exempt.
Brookes-Gibbs warned, however, that reimbursement or direct payment of an employee’s home telephone or broadband bills will be subject to tax and NI, unless costs in excess of the line rental for business calls can be identified. If an employer reimburses their employee for the employee’s own mobile phone, unless business calls and/or data costs can be identified and only these amounts are reimbursed, this money is also subject to tax and NI.
She added that HMRC tax rules differ according to whether staff are working from a permanent workplace – that is, the employee attends it regularly for the performance of their duties – or a temporary workplace – that is, where an employee only goes to perform a task of limited duration or for a temporary purpose. Covid has undoubtedly changed the workplace forever; home may have now become a permanent workplace for many.
Attendees were also reminded that thinking ahead is key.
Brookes-Gibbs concluded: “We expect many employees will go back into the office when restrictions are eased but not on the same basis as before the pandemic. A shift towards more flexible working is here to stay. This means businesses need to think ahead to avoid tax issues. For example, have returning employees returned equipment provided to them? If not, HMRC may deem the equipment as a taxable benefit.”
The webinar finished by advising that businesses should review employee contracts and update them to reflect correct permanent workplace(s). They should consider whether homeworking arrangements need to be established, review and update expense policies, and ensure that remuneration packages are as tax efficient as possible. Last but not least, there are also the controversial new IR35 rules to take account of which may affect the employment and tax status of at least some workers.