A major side effect of coronavirus is that employees have been asked to work at home wherever possible. They may incur additional domestic costs as a result. From a tax perspective what does this mean for employers and employees?

Changing rules?

There’s no doubt that HMRC is taking unprecedented steps to alleviate the tax burden, administratively and financially, on businesses and individuals during the coronavirus pandemic. Ultimately, there may be retrospective relaxations in the rules but for now it’s sensible that wherever feasible employers and employees should assume that the existing ones apply, such as those relating to homeworking.

Lending equipment and services

If you lend equipment, e.g. computers, office furniture to employees so they can work at home you won’t have to report it on Form P11D as a benefit in kind even if they make modest personal use of the borrowed items. That means no special record keeping is required.

Similarly, if an employee needs additional services at home so they can do their job, such as the installation or upgrade of broadband, the extra cost will not be a taxable benefit in kind.

Trap. If an employee uses existing services which they have personally signed up for, e.g. broadband, mobile phone, and you contribute towards the cost of these, you must account for PAYE tax and NI on the amount you pay as if it were extra salary. But this isn’t required where there is a discrete identifiable amount on the bill which relates to services used wholly for work (see The next step ).

Payment of a homeworking allowance

Current rules allow you to reimburse employees for “additional” household costs resulting from working at home. HMRC is aware that there will be additional domestic costs such as higher energy bills, but caps the amount you can pay tax and NI free. It was announced in the Budget that this would rise to £6 from £4 in April 2020. For this exemption to apply there must be a homeworking agreement with your employees. Plus, the employee must work regularly from home. This doesn’t mean all the time but there must be a pattern, say one day per week – this condition won’t be an issue in the current circumstances. The homeworking period doesn’t have to last a set length of time for the exemption to apply.

Tip 1. In practice, and especially during the crisis, any communication, e.g. emails, notifying your staff that they should work at home will be sufficient to constitute a homeworking agreement. So remember to keep a copy of any emails you’ve sent to your staff on the subject.

Tip 2. There’s no requirement for you or your employees to keep a record of the additional home-related costs.

Employees’ tax deductions

Normally, HMRC takes a tough line on claims for tax deductions by employees in respect of homeworking costs not covered by the weekly exemption. However, it might choose to adopta lighter touch this tax year. Employees should keep records of their domestic costs with their tax records so that they can claim a tax deduction.

Employers can lend employees equipment, e.g. computers, and pay for new services, e.g. broadband, for homeworking without it counting as a benefit in kind, even if there’s private use. An employer can also pay employees a tax and NI-free allowance of up to £6 per week to cover additional homeworking costs.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.