However, homeworking isn't the same for everyone. There are also a number of tax implications arising from working from home which are surprisingly complex and seem inconsistent or out of date. It is therefore important that employers and employees are aware of the tax implications which may arise.
And it is to be welcomed that the Office of Tax Simplification‘s (OTS) recent policy paper, Hybrid and distance working report, raised valid questions about whether our existing tax rules are flexible enough and sufficient to cope with this new way of working.
HR and hybrid work:
Take the discrepancy on homeworking costs for example. Homeworking comes with various additional costs for employees, such as increased electricity bills, additional insurance, internet charges, etc. Tax relief may be available to help offset these, calculated from the actual cost.
Many were able to claim £6 a week tax relief during the pandemic, if they worked from home at all during the years 2020-21 and 2021/22, regardless of evidence of additional costs incurred. However, the rules have now changed.
The tax relief is no longer available if employees choose to work from home. Yet the rules are different if an employer pays the individual £6 a week (tax free). We do not see why there should be a distinction.
During the Covid-19 pandemic some employers rushed to send out screens, headphones, desks, chairs, etc to get their workforce set up to work from home. It was probably an afterthought as to what the tax implications of purchasing this equipment would be. But this is an important consideration now that many employees continue to need equipment to work from home and new starters need to be provided with working from home office equipment.
The tax implications depend on who purchased the equipment. If bought by the employer, no tax consequences arise at the point of purchase and, provided personal use is minimal, no benefit in kind charge will arise. If the employee retains the equipment after leaving employment then a tax charge could arise on the market value of the asset at the time, although often the secondhand market value will be relatively negligible.
If an employee purchases office equipment for homeworking and then tries to claim it back from their employer this will be taxable though. It is viewed as taxable income which is subject to income tax and national insurance.
A temporary concession was made during the pandemic so that any reimbursement by an employer for the cost of office equipment was exempt from income tax and national insurance contributions, however this is no longer in place.
The reason for this disparity between how office equipment is treated for tax purposes if an employer purchases it versus an employee purchasing it seems nonsensical, and there are calls for the government to reform these rules.
For larger employers working out which employees have office equipment, who purchased it, whether it has been returned and the cost of returning equipment, which may outweigh the cost of the equipment is a huge administrative burden. Arguably the concession on allowing employer reimbursed expenditure should be reintroduced.
Part of the problem with the tax rules around homeworking stems from the fact these slightly antiquated rules were unexpectedly thrust into the limelight at a time when government had more pressing concerns. While the pandemic has now passed, the rules are still playing catch-up and do not adequately support the modern world.
Many industries and their employees have discovered homeworking can be hugely beneficial. Employers require less office space, employees save commuting time and expenses for example. The recent OTS report said people “felt that there is a need for guidance on hybrid working and the associated tax issues” and we agree – if small employers are needing to take specialist tax advice in relatively vanilla situations, the system is not adequate.
Simple, consistent and rational rules are required, and HMRC should publish clear guidance on their interpretation.
Matt Spencer is a Tax Advisory partner at law firm Kingsley Napley