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Working from home and tax relief
The increase in home working during the COVID-19 pandemic has been the catalyst for many changes, including to the tax system. As more people have turned their homes into offices, tax-related questions have arisen over the availability of reliefs.
In response, HMRC has confirmed that employees working from home because of workplace closure, or following advice to self-isolate, are covered by the home-working expense rules. Here, we provide some answers to some frequently asked questions around expenses related to houses, cars and COVID-19-specific rules.
In response to the pandemic, the Treasury has confirmed that a temporary tax exemption will be in effect from 16 March 2020, the date the government recommended working from home, until 5 April 2021.
The exemption ensures that home office expenses do not attract tax and national insurance contribution (NIC) liabilities where reimbursed by an employer. The exemption is designed to support employees who are working from home as a result of the COVID-19 pandemic and need to purchase home office equipment.
To be eligible for relief, the expenditure must meet two conditions:
- The equipment must be obtained for the sole purpose of enabling an employee to work from home as a result of the COVID-19 pandemic.
- 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.
In addition, HMRC has also confirmed that employees working from home because the workplace had shut, or following advice to self-isolate, meet the requirements for ‘regular’ homeworking.
This means that employees are covered by the rules on homeworking expenses and can claim £6 a week or £26 a month, either through an employer or by claiming tax relief themselves.
There is also the potential to claim a larger sum if necessary. However, this does involve providing analysis of costs and is more cumbersome. Employees can claim online, by phone or post, or via their self assessment tax return, if they usually file one.
Further guidance can be found here.
Business as usual
In most cases it is business as usual and the normal rules on taxable benefits still apply during the pandemic. For example, the provision of one mobile phone and SIM card per employee, with no restriction on private use, and it doesn’t count as a taxable benefit.
This applies to a range of equipment providing it meets three conditions:
- it’s provided solely to enable the employee to perform the duties of the employment
- any private use is not significant, and
- it isn’t an ‘excluded’ benefit – such as a car.
What about employer-provided cars?
Despite most cars clocking up little or no mileage during lockdown, the usual rules do remain in place for furloughed employees and those working at home because of COVID-19. This means a car is still treated as ‘available for private use’ for tax purposes.
HMRC will accept a car is unavailable in limited circumstances, applying only where COVID-19 restrictions on movement prevent it from being returned to the employer or collected.
The rules on tax relief and home working can be complex. We are happy to advise in detail on the best approach to suit your circumstances. We would be only too pleased to provide any further assistance you may need: please contact us.