The treatment of certain expenses and benefits provided to employees during the COVID-19 outbreak

07 May 2020

As HMRC has received numerous queries relating to the topic of how taxable expenses and benefits provided to employees due to coronavirus should be treated, and subsequently reported to HMRC, new guidance on the topic has been published.

The guidance relates to treatment for the sole purpose of Income Tax, as the treatment for the purpose of National Insurance (NI) contributions will vary depending on the specific benefit or expense.

Living accommodation

Where an employee is working at a permanent workplace, and their employer is providing living accommodation for them due to the outbreak of coronavirus, the associated cost will be taxable.

Where exemptions apply, if, for example, the employee is a warden of a sheltered housing scheme and is residing at the premises, where they are on call outside normal working hours, there is no associated tax charge.

If an employee is working at a temporary workplace and is provided with living accommodation due to coronavirus, then tax relief is available. In this scenario, the cost of providing the accommodation should still be reported on a P11D, even where the value of that benefit is nil.

If an employee cannot go home due to coronavirus, an employer can opt to reimburse their subsistence and lodging expenses, if, for example, they stay in a hotel. These expenses are taxable and should be reported via a PAYE Settlement Agreement.

Volunteer fuel and mileage costs

Employers may agree to refund the fuel costs or to fund the costs of any volunteer mileage to encourage their employees to undertake volunteer work.

Employees using company cars

Employers may refund the fuel costs, using the Advisory Fuel Rates, of employees, carrying out volunteer work related to coronavirus, for example, where they are delivering PPE. These refunds are a benefit and employers must settle any tax and NI contributions on behalf of their employees by reporting them through a PAYE Settlement Agreement.

Employers may also refund the cost of fuel for volunteer mileage related to coronavirus. Volunteer mileage should not be taken into account for the purposes of the car fuel benefit charge for company cars. Any tax and NI contributions should be reported via a PAYE Settlement Agreement as a coronavirus-related benefit based on the appropriate advisory fuel rate for the volunteer mileage.

Employees using private cars

If employees use their own car to volunteer, their employer can refund them up to the level of the approved mileage allowance rate. This is taxable and should be reported through a PAYE Settlement Agreement as a coronavirus-related benefit. If an employer pays less than the approved mileage allowance rate, then they cannot claim mileage allowance relief.

Paying or refunding transport costs

Where employers pay or refund their employees for the cost of transport from work to home then this is classed as a benefit, as an employee’s journeys between work and home are private journeys. However, there are some situations which result in an exemption from paying tax on this benefit. All of the following conditions must be met:

  • The employee has to work later than usual, and until at least 21:00
  • This happens irregularly
  • By the time the employee finishes work, either public transport has stopped, or it would not be reasonable to expect them to use public transport
  • The transport is by taxi or similar road transport

Employees may frequently travel to work in a car with one or more colleagues using a car-sharing arrangement. Where this arrangement ceases due to unforeseen and exceptional circumstances relating to coronavirus, and an employer provides transport or reimbursement of the expense of transport from an employee’s home to their workplace, this could potentially be exempt.

The total number of exempt journeys must not be above 60 in any given tax year. This is applicable to late-night journeys and the failure of the car-sharing arrangement combined, not separately, so a total of 60 exempt journeys in one tax year.

If these conditions are not met, any free or subsidised transport is taxable and, as such, should be reported through a PAYE Settlement Agreement as a coronavirus-related benefit.

Free or subsidised meals

There is nothing to report to HMRC and no associated tax and NI payments if an employer offers all of its employees free or subsidised meal of a reasonable value at a workplace canteen or vouchers that cover the cost of buying these meals.

There are, however, some free or subsidised meals that are not exempt. They include meals that are:

  • Not on a reasonable scale, for example, elaborate meals with fine wines
  • Provided off-site but not at a canteen, for example, at a restaurant
  • Not available to all staff
  • Provided under salary sacrifice or flexible remuneration arrangements

There is guidance on how to report vouchers provided to employees for meals outside the workplace to HMRC included later in this article.

Other vouchers, cash allowances or employee accounts provided to employees are classed as earnings. Examples include vouchers that can be exchanged for either food or cash, cash allowances for meals and top-up payments to an employee’s account for workplace food and drink using a card or PIN system.

For these costs, employers must add the amount to an employee’s other earnings and deduct and pay PAYE and Class 1 NI via payroll.

If meals or vouchers provided are not exempt, they must be reported to HMRC, and tax and NI must be deducted and paid on the costs.

Company cars

If an employee is furloughed or working from home, as a result of coronavirus, and they have been provided with a company car which they still have, the car should still be classified as being made ‘available for private use’ for this period. This applies even where they have been instructed not to use the car, been asked to take and retain photographic images of the mileage before and after the furlough period or where they have been physically unable to return the car or have it collected from them.

If restrictions on movement apply due to coronavirus which have prevented the car from being handed back or collected, HMRC will accept that the car is unavailable, where the contract has terminated, from the date that the car keys are returned to either the employer or third party, or where the contract has not been terminated, after 30 consecutive days from the date that the car keys are returned to the employer or third party. This is because returning the keys means that the car cannot be driven under any circumstances even if the employee still has it in their possession.

HMRC also recognises that following the relaxation of coronavirus restrictions, it may take time for cars to be collected where contracts have been terminated. On the proviso that the employee continues to have no access to the keys until the car is collected from them, the car will be regarded as being unavailable.

Salary sacrifice

Coronavirus is accepted as a lifestyle change which allows salary sacrifice arrangements to be reviewed and amended, if required. If an employee opts to change their arrangement, then the employer must ensure that it is recorded in the terms and conditions of their employment.

In April 2017, the rules surrounding salary sacrifice changed and, for most arrangements that were entered into prior to 6 April 2017, the new benefit variation rules now apply.

Transitional rules do apply, however, when the benefit is the provision of a car with emissions of more than 75g CO2/ km, provided living accommodation or the payment of school fees. The new rules are not applicable to these kinds of benefits until 6 April 2021, unless an employee varies or renews their arrangement. If an arrangement is varied directly as a result of coronavirus then this isn’t regarded as a variation for the purposes of the transitional rules.

Employer-provided loans

If an employer provides an employee with a loan that has a value below £10,000 in a tax year, then it is non-taxable.

Further guidance on loans provided to employees is available.

Employees working from home

There is separate guidance available on which expenses are taxable where employees work from home as a result of coronavirus.

Reporting to HMRC

Any coronavirus related expenses or benefits can be reported on an employer’s PAYE Settlement Agreement.

If employers are payrolling benefits in kind, expenses and benefits can be reported via payroll as long as the employer registered with HMRC to do so, prior to the start of the tax year.

Expenses and benefits can still be reported via P11D returns.

There is no extension to the P11D deadline because of coronavirus, so employers must complete all P11D and P11D(b) returns by 6 July 2020 for tax year 2019-20. Any employers unable to file online can use the paper alternative.


The information in this article is accurate at the time of publication. For all the latest information, news and resources on how the COVID-19 pandemic is affecting payroll professions, visit our Coronavirus hub.