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Paying expenses when employees are working from home due to coronavirus

June 02, 2020

Since the coronavirus pandemic hit the UK, the Government have advised the public to stay at home and thus many more people are now working from home. For some employees, this will be business as usual as they may already work from home one or two days a week. For other employees however this will be a new experience and for some employers it may have been a challenge setting everyone up to work from home.

Working from home voluntarily

As a rule, HMRC does state that an employee cannot claim back costs if they are working at home voluntarily.

Given that the Government has strongly advised that people should avoid travel, work from home where possible, not congregate in groups of larger than 6 (different in Wales & Scotland), and should practice ‘social distancing’ then for the most part working from home currently is not voluntary.

Can employers pay expenses to employees?

If an organisation’s employees are working from home due to coronavirus, either because the workplace has closed or they are following advice to self-isolate, then some expenses can be paid by the employer.

Furloughed workers who are eligible for the Coronavirus Job Retention Scheme will not be able to claim any expenses as they are not required to work.

What expenses can be paid?

Mobile phones and SIM cards

If a business provides one mobile phone and SIM card to an employee without a restriction on private use, this is non-taxable.

Broadband

If an employee already had a contract for broadband before they were required to work from home, then no additional expenses can be claimed.

If a broadband internet connection is needed for the employee to work from home and one was not already available, then the broadband fee can be reimbursed by the employer and is non-taxable. In this case, the broadband is provided for business purposes and any private use must be limited.

Laptops, tablets, computers, and office supplies

If these are mainly used for business purposes and not significant private use, these are non-taxable.
Office equipment bought by an employee

The Financial Secretary to the Treasury announced on 13 May 2020 that the reimbursement of expenses that would be for home office equipment are exempt from tax. The relevant Regulations will have effect for the 2019-20 (from 16 March 2020 only) and 2020-21 tax years.

The temporary income tax and National Insurance (NIC) exemption will ensure that no tax liability arises where employers reimburse employees’ personal expenditure on home office equipment arising from arrangements to work from home during the COVID-19 outbreak.

To be eligible for the exemption the expenditure must meet the following two conditions:

•    That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and

•    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 (under section 316 of ITEPA).

Electricity, heating or broadband

A payment or reimbursement to your employees of up to £6 a week from the 6th April 2020 is non-taxable as long as it is for the additional household expenses incurred when the employee is working from home. No records have to be kept by the employee in order to receive this payment.

If an employer covers any costs over the weekly £6 limit, they need to be able to prove that the payments are no more than their employee’s additional household expenses. Evidence of these additional household expense must be given to the employer and receipts kept.

If the payments made by an employer are more than the employee’s additional household expenses they count as earnings.

Employer provided loans

A salary advance or loan to help an employee at a time of hardship counts as an employment-related loan. If a loan is provided with a value less than £10,000 in a tax year it is non-taxable.

Significant private use

For items which are taxable, any exemptions in place for work related benefits must show that there is no significant private use.

If is helpful if an organisation’s policy about private use is clearly stated to the organisation’s employees 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.

Further, it is also important that any decision of the employer not to recover the costs of private use is a commercial decision, rather than for rewarding an employee.

Significant private use should not be based on the time spent on different uses. It should be based on the employee’s duties and the need for them to have the equipment or services provided so they can do their job. An employee does not have to keep detailed records of every instance of private use to prove a claim for exemption.

How to report to HMRC any taxable expenses or benefits

Any expenses or benefits which are related to coronavirus and are taxable can be reported on the organisation’s PAYE Settlement Agreement.

This means the employer can settle any tax and National Insurance Contributions due on any expenses or benefits, even though the responsibility to pay the tax and national insurance would usually fall to the employee, or on both the employer and 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.

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

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