Coronavirus: employees working from home taxable expenses

22nd May 2020

UPDATED FOR HMRC GUIDANCE ON 22 MAY 2020

Certain equipment, services or supplies are taxable if your employees are working from home due to coronavirus.

Employers could be affected where their employees are working from home due to coronavirus, either because:

  • the workplace has closed, or
  • they are following advice to self-isolate

This does not apply to furloughed workers who are eligible for the Coronavirus Job Retention Scheme.

Type of equipment, service or supply

Mobile phones and SIM cards (no restriction on private use)

If you provide a mobile phone and SIM card without a restriction on private use, limited to one per employee, this is non-taxable.

Broadband

If your employee already pays for broadband, then no additional expenses can be claimed.

If a broadband internet connection is needed to work from home and one was not already available, then the broadband fee can be reimbursed by you and is non-taxable.

In this case, the broadband is provided for business and any private use must be limited.

Laptops, tablets, computers, and office supplies

If these are mainly used for business purposes and not significant private use, these are non-taxable.

Reimbursing expenses for office equipment your employee has bought

If your employee needs to purchase home office equipment to enable them to work from home, they will need to discuss this with you in advance.

If you reimburse your employee the actual costs of the purchase, then this is non-taxable provided there is no significant private use.

If you do not reimburse your employee, then they can claim tax relief for these purchases on their tax return or P87. They’ll need to keep records of their purchase and claim for the exact amount.

The government is introducing a new exemption effective from 16 March 2020 to ensure employer reimbursements for the cost of home-office equipment expenses are exempt from tax and NICs.

For the expenditure to be eligible for relief, it must meet the following 2 conditions:

  • that equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak
  • the 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

The exemption will be conditional on the benefit of any reimbursement in respect of home-office equipment expenses being made available to all of an employer’s employees generally on similar terms.

The exemption is a temporary measure and will apply from the day after the regulations come into force until the end of the tax year 2020-21.

This was first announced by the Financial Secretary to the Treasury on 13 May.

Additional expenses like electricity, heating or broadband

Payment or reimbursement to your employees of up to £4 a week (£6 a week from 6 April 2020) is non-taxable for the additional household expenses incurred when your employee is working from home.

If the claim is above this amount, then your employee will need to:

  • check with you beforehand to see if you will make these payments
  • keep receipts

Where an employer does not reimburse the employee, employees can submit claims to HMRC for homeworking expenses, without having to calculate the additional costs from their household bills or keep evidence of those costs.

However, there are four conditions in EIM32820 which have to be met. But where an employee wants to claim more than the flat rate, evidence of additional costs will be needed. 

Employees who complete a tax return can make a claim on the form. Otherwise, a claim can be made on form P87, or by phoning HMRC on 0300 200 3300.

Employer provided loans

A salary advance or loan to help your employee at a time of hardship counts as an employment-related loan.

Loans provided with a value less than £10,000 in a tax year are non-taxable.

Further information on loans.

Temporary accommodation

If your employee needs to self-isolate but cannot do so in their own home, you can reimburse hotel expenses and subsistence costs, these are taxable.

Further information on accommodation expenses.

Employees using their own vehicle for business

You can pay approved mileage allowance payments of 45p per mile up to 10,000 miles (25p per mile thereafter) free of tax and National Insurance contributions.

If you do not pay mileage allowance, your employee can claim tax relief through their Personal Tax Account.

Further information on approved mileage allowance payments.

Employees using company cars

HMRC has published additional guidance for where a company car is parked at an employee's home.

Your employee may have been furloughed or is working from home, because of coronavirus, and provided with a company car which they still have.

You should treat the car as being made ‘available for private use’ during this period even if your employee is:

  • instructed to not use the car
  • asked to take and keep a photographic image of the mileage both before and after a period of furlough
  • unable to physically to return the car or the car cannot be collected from the employee

Where restrictions on movement applies because of coronavirus and prevents the car from being handed back or collected, HMRC will accept that a company car is unavailable in the following circumstances:

  • where the contract has terminated - from the date that the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer
  • where the contract has not been terminated – after 30 consecutive days from the date that the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer

The return of keys means that a car cannot be driven in any circumstances even if it is still in the possession of your employee.

HMRC also recognise that following relaxation of coronavirus restrictions, it may take some time to collect cars where contracts have been terminated. As long as your employee continues to have no access to the keys until the car is collected from them, HMRC will still regard the car as being unavailable.

Significant private use

For items which are taxable, exemptions for work related benefits must show that there is no significant private use.

HMRC accepts that where:

  • your policy about private use is clearly stated to your employee and sets out the circumstances in which private use may be made (this may include making the conditions clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences if the policy is not followed)
  • any decision of the employer not to recover the costs of private use is a commercial decision, rather than rewarding your employee

Significant private use should not be based on the time spent on different uses. It should be based on your employee’s duties and the need for them to have the equipment or services provided so they can do their job.

Record keeping

You do not have to keep detailed records of every instance of private use to prove a claim for exemption.

How to report to HMRC

Taxable expenses or benefits

Any expenses or benefits which are related to coronavirus can be reported on your PAYE Settlement Agreement.

This means you can settle tax and National Insurance contributions on any expenses or benefits, even though the responsibility would usually be on your employee, or on both you and your employee.

This applies to coronavirus related items only, for example, a new desk can go onto the PAYE Settlement Agreement, but a new sofa cannot.

If you are currently payrolling benefits in kind, you may continue to report expenses and benefits through your payroll. You may also continue to report expenses and benefits through P11D returns.

Non-taxable expenses or benefits

Do not report to HMRC.

Further reference

The Income Tax (Exemption for Coronavirus Related Home Office Expenses) Regulations 2020

If you would like to discuss these issues, please contact your usual Bishop Fleming adviser, or a member of the Payroll team.

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