Beyond Covid-19: Homeworking Expenses and the tax rules you need to know about

Working from home

The Covid-19 pandemic has brought many changes to our lives.  One of those has been home working.

We have become used to working at the kitchen or coffee table and, where there has been more than one person working from home, any flat surface has sufficed. We have upgraded broadband connections, garden sheds have become offices, and some people have moved home to secure additional space.

It would appear that home working is here to stay, at least in some form.  Employers and employees are having conversations around agile or smart working, and getting ready for the day when working from home is no longer mandated but, rather, a choice.  Because in the last 16 months, we have discovered a different way of working and managing our lives in a way that gives us greater flexibility.

Employers have also discovered that productivity does not necessarily decrease as a result of home working, and some have downsized their office space with the full expectation that homeworking (or smart working) will now be the norm rather than the exception.  So, for those of us still sitting at the kitchen table, it would appear that a more permanent solution may be required, or at least one that allows us to work from home more often comfortably.

Factor into this conversation the end, in April 2022, of the temporary Covid-19 exemption in relation to home working expenses. The exemption currently covers circumstances where an employee is reimbursed after having bought home office equipment: a table, chair or a monitor, for example. Normally, reimbursement to an employee of these expenses would be taxable, and income tax and national insurance would be recoverable.  The exemption applies when:

  • equipment is obtained solely to enable the employee to work from home because of the pandemic
  • it would have been exempt from income tax if provided directly to the employee, either by the employer or on their behalf
  • such arrangements are available to all employees generally on similar terms.

In the absence of the exemption, the general rules will apply.  These are:

  • Equipment, services and supplies provided to an employee who works from home can be fully expensed if they are provided only for business purposes, and the personal use is insignificant.
  • For household expenses in addition to the above to be allowable, employees need to work from home, either because the equipment they need is not available at the employer’s workplace, or their work means they live too far away from their workplace to travel there every day. In other words, it is not a choice to work from home.  The amounts that can be claimed back are quite limited (for example, £26 a month for monthly paid employees).  The employer can choose to reimburse actual costs in the alternative, but this would require employees to keep records of the expenses incurred.

Employers setting up smart working policies need to carefully consider the following issues now before the Covid-19 exemption comes to an end:

  • Employees must be able to show a regular home working pattern. The days per week worked at home can vary, but there must at least be an arrangement that requires the employee to work, for example, two days a week at home.  Ensuring this is in writing would be good practice.
  • Whether to reimburse costs or to ask employees to claim the tax relief themselves and this decision should also be communicated in good time to employees.
  • How much will the employer reimburse: the full cost incurred by employees or the fixed costs?  Employees will need to know if they should be keeping records and how these must be kept.

As with all changes in the workplace, it’s worth considering how you will consult with your team and involve them in any decisions about changes to working practices and the resulting tax implications.


Cathy Bryant

Cathy Bryant is a partner in the Blake Morgan’s corporate team specialising in corporate tax. As a dual qualified lawyer, Cathy brings a depth of experience to her role as an adviser on tax matters in corporate transactions. Cathy also advises on employment taxes - for example on termination payments made to employees, the application of IR35 and other employment related tax matters. She develops share incentive schemes for employers and advises on the structure and scope of these.

Cathy Bryant

https://www.blakemorgan.co.uk

Cathy Bryant is a partner in the Blake Morgan’s corporate team specialising in corporate tax. As a dual qualified lawyer, Cathy brings a depth of experience to her role as an adviser on tax matters in corporate transactions. Cathy also advises on employment taxes - for example on termination payments made to employees, the application of IR35 and other employment related tax matters. She develops share incentive schemes for employers and advises on the structure and scope of these.