Coronavirus: Working from Home…
Sowerby, like many other firms, have been doing a lot more working from home since the start of the Covid-19 outbreak.
Use of the acronym ‘WFH’ might have brought you confused looks a few weeks ago, but seems part of everyday language now.
While that brings up a ton of practical issues for both employers and employees, including a much heavier burden on IT systems (and IT staff – special thanks to our in-house expert Neil Myers from the rest of the Sowerby team!) we’ve been getting asked a number of questions as to whether it has any tax implications?
What are the normal rules for staff who work from home?
There is a surprising amount of depth to the tax rules that can apply. For anyone wanting the full details on this topic, the Chartered Institute of Taxation have published an excellent in-depth guide on WFH in light of the coronavirus crisis.
Looking to cut through most of the detail, the key aspect for most employees is whether “a homeworking arrangement” exists?. If it does, then certain tax-free payments can be made from the employer, to the employee, to cover the employee’s extra expenses resulting from working from home.
Alternatively, if there is no expenses payment going from employer to employee (its optional – so this is to be negotiated between employer and employee) then the employee can instead claim tax relief for these expenses (on their tax return or in their PAYE code) reducing their tax bill. Of course, this isn’t as good for the employee as receiving an expenses payment from their employer, as they only get the tax savings back on those expenses, not the expenses themselves.
For a homeworking arrangement to exist, it requires more than just for the employee to work from home. Two criteria must be met:
- There must be formal arrangements between the employer and employee regarding working from home (usually this will be in writing, typically in the job contract etc.)
- These arrangements will stipulate that the employee MUST work from home on a regular basis
Therefore for employees who work from home optionally, or intermittently, homeworking arrangements will not exist. Employees who have a regular and enforced home working pattern by agreement with their employer will likely have a “homeworking arrangement” for tax purposes. The amount of time spent working from home is not the defining factor.
How much are the expenses in question?
Not that much. HMRC give little away when it comes to employment expenses.
Still, we recommend its better to take advantages of all the tax breaks, however small.
The flat rate of expenses that applies to employees where there are “homeworking arrangements” are:
- £4 a week or £18 a month up to 5 April 2020
- £6 a week or £26 a month from 6 April 2020 onwards.
These rates apply regardless of how many days an employee actually works from home. Either there are “homeworking arrangements” or there are not.
It is possible to establish higher figures, based on actual real additional costs.
However, most employers and employees will elect to use HMRC’s simple flat as they are much easier to use.
Substantiating higher levels of expense is quite onerous from a bookkeeping and record keeping perspective, and in most cases simply not worth the administrative effort for an extra few pounds of expense. It’s important to be aware that only additional costs of homeworking that can be claimed, so that would be proveable amounts of additional heat and lighting bills etc. Proportions of expenses that would remain the same regardless of the homeworking happening (say mortgage payments or rent) cannot be claimed at all. This highlights how difficult it is to keep sufficient records to substantiate higher costs.
How are these rules different during the coronavirus crisis?
The good news is that HMRC’s guidance indicates that where an employee is working from home due to COVID-19 “a homeworking arrangement” will likely exist for this period. This includes scenarios where when either the employer’s workplace has closed or the employees are following advice to self-isolate.
What about provision of equipment?
An employer can provide equipment to employees to enable them to do their work from home without there being any tax consequences for the employee. This is provided the employee uses it in carrying out their work and any private use of the equipment is not significant. Typically this will include items like computer equipment.
What about furloughed workers?
As furloughed workers are not allowed to carry out any work for their employer, a homeworking arrangement cannot exist and therefore homeworking expense claims can’t apply to the period of furlough.
What about the self employed?
All of the above relates to employees on PAYE. Different rules apply to self-employed workers in relation to what expenses they can claim through their trading accounts. Rather than cover these in this blog, we’d recommend that this is best discussed as part of your accounts preparation process, as it will vary more significantly from business to business. Please get in touch with us if you’d like to discuss your business expenses in more detail.