Employee Expenses

With many employees continuing to work from home, HMRC have announced several modifications to the normal benefits and expenses tax rules to enable easier homeworking for both the employer and the employee.

Here we outline the key points to be aware of.

Home use of office equipment

There is already an exemption in place if an employer provides equipment (laptops, printers etc) to allow homeworking, provided such items are used mainly to perform an employee’s duties of employment with any private use being ignored if it is ‘insignificant’. The term ‘insignificant’ is measured by motive, and not time, so if the purpose the equipment was provided to the employee was solely to enable the employee to work from home, then any private use will be disregarded. That said, it would be good practice to set out the terms of use in a clear policy document to demonstrate that there is no intention to reward employees for the provision of such items.

Whilst the employer would normally be expected to provide most items required, if an employee needed to purchase additional items, HMRC have confirmed that tax relief will be available through a temporary exemption allowing an employer to reimburse an employee for the costs associated with homeworking subject to satisfying the following two conditions:

• That the equipment is obtained for the sole purpose of enabling the employee to work from home because of the coronavirus outbreak
• Provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer

This relaxation applies from 16 March 2020 to 5 April 2021.

Mobile phones and broadband

Whilst there has been a tax-free exemption in place for many years where an employee is provided with a company mobile phone, the situation is not so straightforward where an employee uses their own mobile phone and broadband connection for business use. The key principle here is that tax relief is only available in respect of the additional costs incurred by the employee, so for example, where the cost of the line rental would be incurred by the employee irrespective of any business calls, no tax relief will be available for that rental cost.

Similarly where the employee pays a fixed monthly amount under their private contract, any business calls would not give rise to a business cost even if over the past six months the proportion of business calls have outweighed the personal calls – it is only where extra costs are incurred that tax-free expenses can be paid. In the rare circumstances that an employee does not already have home broadband, which, therefore had to be installed to allow homeworking, then the whole cost of installation and monthly charges would be eligible for tax relief.

Additional costs using home as office

Employees working at home will inevitably incur additional costs for domestic heating and lighting which the employer would normally reimburse to the employee, subject of course to quantifying the precise additional cost incurred. HMRC recognise this difficulty and to minimise record keeping have confirmed that employers can pay up to £6 per week from 6 April 2020 (previously £4 per week) without the need for supporting evidence. If the employee can demonstrate higher weekly costs these can be paid tax-free but the onus of proof that no taxable benefit arises lies with the employer.

Company cars and mileage

Where employers provide company cars to their employees, a taxable benefit will arise if the car remains available for use by the employee irrespective of whether it has actually been used. Despite the travel restrictions imposed during lockdown where many employees simply have not been able to drive their company provided cars, the taxable benefit remains in place. However, HMRC have announced that where an employee is furloughed and restrictions have been imposed meaning the car cannot be collected or handed back, no taxable benefit will apply if:

• The contract is terminated – from the date the employee returns all the keys; or
• The contract continues – after 30 days from the date that the employee returns all the keys.

Unless these conditions are satisfied, a car will still be treated as available for private use and the taxable benefit will continue to apply.

Where an employee drives a company car for COVID-19 volunteer related work, that mileage will not be treated for the purposes of any car fuel benefit charge. In addition, for any employees engaged in volunteer work who use their own car, they may be paid at a rate up to the approved mileage rate (45p per mile for the first 10,000 miles and 25p per mile thereafter) without any tax implications but should the rate reimbursed be less than the approved mileage rate, then the employee will not be able to make a claim for the excess.

PAYE Settlement Agreements

Where the employer provides benefits or pays expenses which do not fall within any of the exemptions, HMRC have announced that employers may choose to settle the tax and NIC liability on any expenses and benefits which may relate the COVID-19 through a PAYE Settlement Agreement as an alternative to P11D reporting. Whilst this is helpful, employers should note that the tax liabilities are calculated on a “grossed-up” basis including Class 1B NICs at 13.8% thereby making this a relatively expensive choice.

Please contact the Mercer & Hole Business Services team for any help and advice with any of the above HMRC regulations. We are here to support you and your business.