Employees working from home – what is taxable?

HMRC have published guidance for employers on what equipment, services or supplies are taxable if employees are working from home due to either employers’ workplaces being closed, or if they have been advised to self-isolate as a result of coronavirus (COVID-19).

Furloughed workers who are eligible for the Coronavirus Job Retention Scheme are not included in this.

The following expenses are non-taxable:-

Mobile phones and SIM cards – if an employer provides a mobile phone and SIM card. This is limited to one per employee. There is no restriction on private use.

Broadband – if the employee did not already have available broadband internet connection at home, then the broadband fee can be reimbursed by you. The broadband is provided for business, and any private use must be limited. Please note, if your employee already pays for broadband, then no further expenses can be claimed.

Computers, laptops, tablets, and office supplies – if these are mainly used for business purposes and there is no significant private use*.

Additional expenses such as 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. Please note, 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

Employer provided loans – A salary advance or a loan of up to £10,000 to support your employee at a time of hardship is treated as an employment-related loan. Please note, a loan greater than £10,000 in a tax year is taxable.

Employees using 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.

Non-taxable expenses or benefits do not need to be reported to HMRC.

The following expenses are taxable:-

Reimbursing expenses for office equipment your employee has bought is – this is taxable. This should be reported on your PAYE Settlement Agreements.

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.

How to report taxable expenses or benefits to HMRC

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.

 

*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.

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