Jane Parry – managing partner at PM+M – on dealing with expenses for home working employees
HMRC have issued guidance covering the tax treatment and reporting of expenses for employees who are working from home during the current COVID-19 situation and builds on their existing home working expenses guidance.
Provision of equipment
Provision of a mobile phone for an employee’s use is tax free and this can include private use.
Provision of other equipment such as laptops and office supplies are also tax free, but for these there must be no significant private use.
As regards extra expenses which employees may incur due to being temporarily home based, the common ones are:
Broadband contracts – if the employee already has a contract then the broadband fee cannot be claimed tax free (and will be taxable if it is). If, however, the employee did not have broadband and needs a contract just for work use (with no significant private usage) the fee can be reimbursed tax free.
Home expenses such as heat, light, phone calls and broadband usage charges – a flat rate of £6 per week or £27 per month can be paid tax free to cover the increased costs of these items due to home working (the rate was £4 per week or £18 per month prior to 6 April). Higher amounts can be claimed by agreement but must be supported by receipts or other evidence. In practice, most people find the flat rate allowance sufficient to cover these costs.
It was formerly the case that if the employee had bought office equipment, such as printers, in order to be able to work at home, that reimbursement was taxable and this was dealt with via a PAYE settlement agreement. However, a temporary exemption to this has been introduced taking effect from 16 March 2020 through to 5 April 2021.
To qualify for the exemption, the office equipment must have been purchased for the “sole purpose of enabling the employee to work from home as a result of coronavirus” and the provision of such equipment would have been tax exempt if it had been provided directly to the employee (so is subject to the proviso that private use is not significant). This could include: computer equipment, office furniture or internet access, for example.
If not already in place, it is advisable for employers to put a home working agreement or policy in place which sets out what home working arrangements will be in place, what equipment and supplies will be provided and what expenses will be met. The policy should also set out restrictions or limitations on private use of equipment provided as this can be valuable in supporting their tax free status.
For items which are taxable, HMRC’s guidance sets out that these should be dealt with via PAYE settlement agreement if the employer wishes to bear the tax.
For employees who are working from home but not having expenses reimbursed by their employer, claim can be made for tax relief on the £6 flat rate per week (or more with appropriate evidence) via self assessment tax returns, via personal tax accounts or by calling HMRC to ask for tax codes to be amended