Mathew Akrigg ACIPP, policy and research officer at the CIPP discusses some of the considerations for individuals who are working from home, either on a hybrid or full-time basis, as working practices change following the pandemic

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The way we work has been turned on its head and many employers are now embracing the remote working revolution. But with this mass change of working scenarios, we need to understand how the current legislative framework interacts with it. Nobody wants to be on the wrong side of Her Majesty’s Revenue and Customs (HMRC) when it comes to compliance, so let’s look at some of the tax implications of home and hybrid workers, and what employers can and can’t do.

 

£6 per week employer payment

Let’s start with something simple – the employer payment for reasonable costs incurred when working from home. This is a payment that an employer can make to any worker who works from home regularly. From 6 April 2020, the guideline that can be paid to an employee without needing to keep records, is £6 per week or £26 per month, for employees who are paid monthly. This is laid out in the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 Section 316A, which can be accessed here: http://ow.ly/62qZ30sjm6i.

If the guideline rate is paid, the employer doesn’t need to justify the costs and the employee isn’t required to keep any record of additional expenditure. However, the guideline isn’t a maximum and can be exceeded by the employer. If an additional amount is paid, the employer will need to either agree a scale rate or reimburse the actual expenses, both of which will have a larger administrative burden. Both methods won’t incur additional tax or National Insurance contributions (NICs), unless the employer is unable to evidence the additional expenses. Further information on scale payments is available online, at: http://ow.ly/wcNl30sjm7E.

If employers choose to pay this at the £6 guideline rate, there’s a relatively low burden, meaning the payment can be made without much concern for compliance. But not all employers are able, or willing, to pay this amount, so what’s available to employees outside of this?

 

Employee tax relief for working from home

Where an employer hasn’t provided the payment discussed above, employees can claim tax relief from HMRC directly, and an adjustment to the tax code is made. The process for claiming can be completed online: http://ow.ly/nUv730sjm85.

The tax relief can be claimed on £6 per week without any requirement to keep evidence. If employees wish to claim relief on the exact amount of extra costs incurred then bills, receipts and contracts must be provided to prove the additional expenditure.

Complications arise when we begin assessing who is eligible for the relief, as the rules around this are stringent and exact. They’re laid out in ITEPA 2003 Section 336: http://ow.ly/nbE630sjm9V and Employment Income Manual (EIM) 31630: http://ow.ly/CJX630sjma7, which provide the criteria for eligibility for this relief. To avoid any confusion, here are the tests verbatim:

The tests that apply before a deduction can be permitted under Section 336 are:

• the expense must be one that each and every holder of that employment would have to incur, see EIM31640: http://ow.ly/seK430sjyMw

• the expense must be necessarily incurred, see EIM31645: http://ow.ly/2Shb30sjyMA

• the expense must be incurred in the performance of the duties of the employment, see EIM31650: http://ow.ly/ZuJL30sjyMC

• the expense must be incurred and paid, see EIM31655: http://ow.ly/E6sF30sjyMU

• the expense must be wholly and exclusively so incurred, see EIM31660: http://ow.ly/Qunl30sjyMY.

In the context of working from home, this is slightly more complex than ‘works from home regularly’, which is included within ITEPA 2003 Section 316A. Generally, where an employee’s workplace is their home, they’ll qualify to claim this relief. Where the employee has a choice, however, they’re not deemed as fulfilling the criteria.

HMRC provides some excellent examples here: http://ow.ly/jVRS30sjmaR.

To make matters more complicated, the UK government introduced changes as part of its coronavirus response. It introduced an easement on the £6 tax relief that allows employees to claim it for the entire year, even if they only fulfil the criteria for part of the year. With lockdowns and work from home mandates throughout 2020/21 and 2021/22, employees who were made to work from home for even one day would pass the tests. This easement is still in place for the 2022/23 tax year, but unless we see further lockdowns or home working mandates, it’s unlikely many hybrid workers will continue to qualify. This poses the question: does the legislation need to change to accommodate new hybrid ways of working? For many businesses, hybrid working is still relatively new, and with so many rules rooted in case law from before its prominence, it may be time for some changes.

 

Reimbursement of equipment

Finally, covered by ITEPA 2003 Section 316 (http://ow.ly/qjwA30sjyNW) is the reimbursement of equipment to workers. This became particularly relevant during the pandemic, when working requirements changed suddenly and equipment was required by employees working from home.

Up until 5 April 2022, equipment bought by employees could be reimbursed, without the requirement to report and pay tax if the employee:

agreed the purchase with their employer in advance

mainly uses the item for business

keeps the equipment.

From 6 April 2022, any coronavirus-related changes ceased, and the standard rules are applied.

There’s no tax charge on the expense an employer incurs in providing directors and employees with supplies and services that:

are provided other than on the employer’s premises (e.g., employees who work at home or while travelling) (EIM21611: http://ow.ly/troI30sjzKv), and

are provided for the sole purpose (see EIM21614: http://ow.ly/Z3Nr30sjzKA) of enabling the employee to perform the duties of the employment, and

the individual uses in performing the duties of the employment, and any use for the employee’s private purposes isn’t significant (see EIM21613: http://ow.ly/CRNi30sjzKE).

This may cover equipment such as computers, printers, stationery and furniture.

If equipment was provided by the employer (not reimbursed), tax won’t be applicable if the equipment is returned to the employer, usually at the end of employment. If the ownership of the item is transferred to the employee at any time, this will become an employee benefit.

 

What will the future hold?

Expenses for home workers can be a tricky area to navigate, and with more people than ever working remotely, either full-time or on a hybrid basis, this will be an area of consideration for many payroll professionals. Could there be future reform here to reflect the growing proportion of UK workers it impacts? Only time will tell… 

• Policy article
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