If you have employees working from home during Coronavirus, read on to find out which expenses are allowable.
To help employers see what expenses they could pay employees during the Covid-19 outbreak, HMRC published guidance entitled “Check which expenses are taxable if your employee works from home due to coronavirus (COVID-19)”. In addition there was a parliamentary statement on 13th May explaining that from 16th March to the 5th April 2021 there will be a temporary tax exemption and NIC disregard where the employer reimburses an employee for the costs of home office equipment providing certain conditions are met.
Legislation states that, to be allowable as a deduction from earnings, the employee must be obliged to incur and to pay expenses wholly, exclusively and necessarily in the performance of the employment duties. It is not enough for expenses simply to relate to the employment, they must meet this statutory test.
Additional household expenses
As employees are spending more time at home, they may be incurring higher heating and lighting costs, telephone/internet charges etc. owing to work. Providing employees are now performing substantive duties at home and meet other conditions (for which see HMRC’s guidance at EIM32760) they can claim for these additional costs. HMRC accept that it will be difficult to calculate the additional costs incurred and so offer a choice:
- Claim a deduction of £6 per week or £26 per month if monthly paid (exclusive of the cost of business telephone calls), or
- Claim more but you must keep records and be able to show how this figure has been calculated.
If the employer pays a homeworking allowance, then you must reduce your claim by this amount.
Telephone, Broadband & Computer Equipment
If employees are using an employer provided mobile phone then s319 ITEPA 2003 exempts this from an income tax charge. If employees are using your own telephone, mobile or landline, then they can claim relief for the cost of business calls but not any rental element. The calculation can be complex for mobile phone use.
In the rare case that employees don’t already have a home computer or broadband connection but need these to work from home, then the provision of computer equipment and the reimbursement by employers of a broadband connection fee can be reimbursed by employers and is non-taxable under s316 ITEPA 2993 providing that non-employment use is “not significant”. The same rule would apply where employees are temporarily having to use office equipment in their home whilst home working.
Reimbursement or Tax Relief Claim
Clearly it is in the interests for employers to pay for, or reimburse employees for the cost of, allowable expenses wherever possible to avoid employees being out of pocket.
However, if employers do not reimburse all allowable costs, then employees can still claim tax relief for the allowable expenses. This will at least give employees some help towards the costs.
For example if you are a basic rate taxpayer, you can reduce your income tax liability by 20p for every £1 of allowable expenses incurred but not reimbursed. If you are already within self-assessment, then you should make the claim on your annual return. If you are outside of self-assessment, you can use the form P87 procedure. You cannot claim more than £2,500 of expenses using the P87 procedure and will have to register for self-assessment if your claim is higher. Whichever method you use, remember to retain receipts and calculations as evidence to support the claims made.[1]
The exemption is a temporary measure and will have effect from the day after the regulations come into force until the end of the tax year 2020/21. However, we are told that HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any reimbursed payments made from 16 March 2020 (the date the government recommended working from home) to the date these regulations take effect.[2]
[1]Source Croner Taxwise
[2] Source Informanagment