Tax implications of working from home

The current Coronavirus measures have resulted in many employees working from home.

The following considers the taxation implications on the additional payments which may be received from employers and on the additional costs which the employee may occur.

Payments from Employers for Working at Home

Homeworking arrangements exist where there are formal arrangements in place (verbally or in writing) between an employer and an employee such that the employee must work at home regularly under those arrangements.

HMRC’s guidance indicates that where an employee is working from home due to the Coronavirus either because the employee’s workplace has closed or the employee is following government advice, a homeworking arrangement will exist for this period.

Under the homeworking exemption, tax exempt payments can be made by the employer to meet or reimburse reasonable additional household expenses that an employee incurs in carrying out the duties of the employment at home.

Such costs could include the additional costs of heating and lighting the work area, increased internet or business telephone calls.

The additional household costs must be incurred in carrying out the employee’s work duties. It should be noted that any fixed costs already being incurred by the individual will be excluded. This would include mortgage interest, council tax or rent etc. Also excluded from the tax reliefs are any expenses that put the employee into a position to work at home, e.g. building alterations.

Payments

An employer can agree to make a tax-free payment to an employee of up to £6 per week where the employee is working regularly at home under a homeworking arrangement without records having to be maintained detailing the additional costs.

Greater amounts can be paid to the employee tax free where the employee provides the employer with adequate evidence to justify the costs being incurred and the employer agrees to pay that greater amount. Records should be retained to show the additional expenditure incurred.

Provision of Assets

Generally, the provision of equipment to employees to carry out their employment duties is exempt from tax as long as the private use of the equipment is ‘insignificant’. If the private use is not insignificant, then a benefit-in-kind tax charge will arise on the employee.

These exemptions from a taxation charge do not apply to the provision of a motor car or van, or living accommodation.

Mobile phones

The provision by an employer to an employee of one mobile phone when the phone contract is with the employer is not a taxable benefit in kind even if the employee has private use of the phone.

However, it should be noted that any general payments by an employer to an employee for the employee to use their own mobile phone will be taxable although the additional costs of making itemised business can be reimbursed tax free.

Home phones

The cost of identified business calls can be paid by an employer to an employee tax free.

Any payments for the fixed costs of the line rental will be a taxable benefit in kind as no additional cost has been incurred by the employee in making the business calls.

Normally, no deduction is permitted for any part of the rental or standing charge for a telephone installed at the employee’s home but where there is a genuine business need for a second telephone line at home and that line is used exclusively for business calls, a claim for a deduction for the rental of the second line is permitted.

Travel from Home to a Workplace

Ordinary commuting is normally defined as the travel between an individual’s permanent, workplace and their home, or other location which is not a workplace of that employment.

The costs relating to ordinary commuting are not tax deductible and any reimbursement of expenditure from an employer is generally taxable.

Qualifying Business Travel

Qualifying business travel refers to travelling in the performance of an employee’s duties.

A common example is the travel between one workplace and another in connection with a single employment.

The cost of such travel is, normally, a tax deductible expense.

It is generally the case that where an employee makes a journey to or from a ‘temporary workplace’ which the employee has to attend to carry out the duties of their employment the cost of travel is a tax deductible expense. A typical example might be where an employee has to travel directly between home and a client’s office. It excludes journeys that constitute ‘ordinary commuting’ or ‘private travel’.

Temporary Workplace

A workplace will be a temporary workplace if an employee goes there for a temporary purpose for a limited duration – so long as that duration does not exceed 24 months and the duration is not the whole, or almost all, the length of their employment contract.

If home is a workplace then qualifying travel will be a tax deductible expense. If the employee is required to carry out the duties of employment from home,  the employee will be entitled to tax relief for the expenses incurred in travelling from home for journeys to other work places (e.g. in visiting clients).

However, it should be noted, that where an employee is required to work at home on some days and at their company’s offices on others, the travel between home and the company’s offices on the days they are required to be there will be ‘ordinary commuting’ and not tax deductible.

Employees Using their own Vehicles for Business Travel

Where an employee uses their own vehicle for a qualifying business journey an employer can make an Approved Mileage Allowance Payment to the employee tax free.

The approved mileage rates are:

• 45p per mile for the first 10,000 business miles each tax year
• 25p per mile thereafter.

Where payments exceed the approved rates, the excess is taxable.

Where an employer does not make a mileage allowance payment, or makes a payment at less than the approved rates, the employee can make a claim for tax-relief on the difference.

 If you have any questions regarding the tax implications of working from home, please get in touch in the usual ways.