Supporting employees working from home
As a result of the COVID-19 pandemic, many employees are now working at home in accordance with Government instructions to help reduce the spread of Coronavirus.
Providing equipment to employees working from home
Employees may need tools and equipment to enable them to work from home. For example, employees who are office based, may need a computer, access to software and possibly a printer. They may also need stationery and printer ink. What are the tax implications if the employer provides these or if the employee meets the cost?
Employer provides equipment to work at home
Employers can provide equipment and supplies tax-free to employees working from home as long as certain condition are met:
- any use of the accommodation, supplies or services for private purposes by the employee or by members of the employee’s family or household is not significant;
- where the accommodation, supplies or services are provided otherwise than on premises occupied by the employer, the sole purpose of the provision is to enable the employee to perform the duties of their employment;
- the provision of the accommodation, services or supplies does not comprise an excluded benefit (such as a car or the construction of a home office).
The exemption will cover the provision of office furniture, such as desks and chairs, computer equipment and stationery. Further guidance on what is covered by the exemption can be found on the Gov.uk website.
Employee meets cost of homeworking equipment
The exemption outlined above does not apply if the employee meets the cost of any equipment that they need to work from home.
If the employee meets the cost, the normal rules for deductibility of expenses incurred by employees apply – that is to say, the employee can claim a deduction for revenue expenses that are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. No deduction is allowed for capital items, such as office furniture and computers. However, employees can claim a deduction for the cost of stationery and suchlike.
Employee meets cost initially and claims it back
From a tax perspective, there is a difference between the employer providing equipment and supplies to enable the employee to work from home and the employee meeting the costs initially and claiming it back from the employer, despite the fact that in each case the employer ultimately bears the cost.
Where the employer provides the equipment, the exemption outlined above applies as long as the associated conditions are met. However, problems can arise if the employee meets the cost and claims it back. In this case, the relevant exemption is the one for paid and reimbursed expenses. This covers paid and reimbursed expenses that would be deductible if met by the employee, i.e. revenue expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment. Consequently, reimbursed capital expenses fall outside the exemption, are taxable and must be reported to HMRC. To avoid this situation, the employer should provide the equipment directly instead.
Additional household expenses
Employees working from home will incur additional household expenses as a result. They may use additional electricity and gas, have higher household insurance or incur additional cleaning costs.
Employers can pay employees a tax-free allowance of £6 per week (£26 per month) to help cover some of these additional costs. Prior to 6 April 2020, the allowance was £4 per week (£18 per month). As long as the employer does not pay more than this, no evidence is required of the amount spent. Guidance on the relief is available on the Gov.uk website.
Employers can pay higher amounts tax-free to cover additional costs of working at home as long as these can be substantiated.
Employees cannot claim a deduction of £6 per week if the employer does not pay the allowance – the usual rule for deductibility of employment expenses apply.
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Speak to us to discover how you can support employees working from home in a tax-free manner.