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Tax Relief and Home Working

By The Association of Taxation Technicians (ATT) Last Updated 19th October 2020

Since the outbreak of COVID-19 homeworking has become the norm for many millions of people.

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A common concern is what, if any, recompense employees can get for any additional costs as a result of their new arrangements.

In general, the starting point is to look at the existing rules for homeworking, which have been around for some time, but there are also covid-specific concessions to consider.

This article covers:

  • What homeworking expenses employers can reimburse tax-free.
  • The tax reliefs that employees can claim – including some covid-specific provisions.
  • Specific issues regarding the provision of office equipment.

Option 1: Employer reimbursement of costs

From 2003, employers have been able to make tax-free payments to help employees cover their reasonable additional expenses incurred while working from home. Eligible payments are not subject to either income tax or national insurance.

Which employees are eligible?

To be eligible, the employee must be carrying out the duties of their employment under homeworking arrangements. This means that the employee is regularly performing some or all of their duties at home.

HMRC guidance notes that they will accept an employee is working at home regularly where it is frequent, or follows a pattern, such as working at home for two days of every week. In the example of an employee working two days a week at home, HMRC will still consider it to be regular even if the employee varies the days which they work at home each week. 

Informal working at home which is not by arrangement does not count as homeworking – for example taking work home in the evenings will not qualify the employee for tax-free reimbursement of costs. There must be an arrangement to work at home and not at the employer’s premises, and it is good practice for this to be in writing.

During the COVID-19 pandemic, HMRC will accept that employees working from home because their employer’s offices have closed – or because the employee is following advice to self-isolate – meet these requirements. Newly home-based employees will be eligible to receive the allowance tax free from the date that their employer agreed they could work from home, or from when the initial government advice to work at home was announced in March 2020.

What costs can the payments cover?

The reimbursements can only cover reasonable additional costs incurred by the homeworking employee. There are two main approaches.

Firstly, the employer can pay the following fixed amounts:

  • £6/week for weekly paid employees (£4/week prior to 6 April 2020); or
  • £26/month for monthly paid employees (£18/month prior to 6 April 2020).

The advantage of paying at these rates is that there is no need for the employer to justify the expenditure and the employee does not need to keep records of their additional costs.

The weekly, flat-rate amount applies equally to part-time workers and it is not necessary to pro-rate it because the employee does not work at home full-time.

If the flat-rate is not appropriate, then a larger tax-free amount can be paid subject to provision of evidence for the additional costs. There are two ways to do this.

The first approach is to calculate a scale rate payment which reimburses the average additional costs of working at home. It is possible to agree to increase this annually. Once the scale rate has been established following HMRC guidance, then employees are not required to keep subsequent evidence of costs.

In practice, we do not expect HMRC to have the resources to agree scale-rates during the COVID-19 outbreak.

Alternatively, the employer can reimburse the actual additional costs incurred by the employee. Allowable costs include:

  • additional heating and lighting costs
  • additional insurance
  • metered water
  • telephone or internet access charges
  • business rates (if applicable)

Only the increase in costs incurred by the employee can be reimbursed. Costs that would be the same whether or not you work at home cannot be included. Such costs might include:

  • mortgage interest or rent
  • council tax
  • water rates

For costs such as broadband internet connection, HMRC say that if the employee is already paying for a connection before starting working from home then this is an existing expense and cannot be reimbursed tax-free. If, however, the employee is not connected to broadband and needs a connection to work from home, then this would qualify as an additional cost which the employer could reimburse tax-free. 

The same principles will apply for the cost of a domestic landline rental. Only additional costs incurred by the employee as a result of homeworking can be reimbursed by their employer tax-free.

The employer is also not permitted to reimburse tax-free any costs that put the employee in a position to work at home such as building alterations. However, the employer can provide office equipment and office furniture. These would be tax-free benefits in kind. (Although see below for tax issues that can arise where the employee provides their own equipment.)  

Option 2: Employee seeks tax relief

If an employer does not choose to reimburse some or all of the homeworking employee’s extra expenses, then under the existing rules the employee is not automatically allowed tax relief on their extra costs. Tax relief for extra costs is only given if such costs are incurred wholly, exclusively and necessarily for the employee’s work.

Which employees are eligible under the usual rules?

In order to claim tax relief for homeworking costs, the usual rules are that an employee must show that their home is a workplace. HMRC will accept that a home is a workplace where:

  1. The employee performs substantive duties at home. Substantive duties are the tasks that employees must carry out which form all or part of the central duties of their employment. 
  2. The duties require the use of appropriate facilities and such facilities are not available to the employee on the employer’s premises. (Or the employee lives so far away from the premises it is unreasonable to expect them to travel there on a daily basis.)
  3. At no time before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

While the first two of these conditions are likely to be met by employees homeworking as a result of COVID-19, it was not immediately clear whether HMRC would consider the third to have been met during the pandemic.

Temporary relaxation during the pandemic

On 27 March 2020, the Financial Secretary to the Treasury suggested in a written parliamentary answer that HMRC might take a more lenient view on tax relief for homeworking expenses during the pandemic for those employees who do not meet the strict definition of home as workplace and whose employers will not make any contribution to their costs.

In October 2020, further clarification from HMRC was supplied to the ATT and other professional bodies to confirm that relief will be available for individuals who are working at home on a regular basis for all or part of their time as a result of coronavirus. We understand that this relaxation to the usual tests will apply for 2020/21 (and we presume also to the short period at teh end of 2019/20 when the Government first advised mass homeworking), as long as the employee is not working at home by choice.

HMRC is emphasising that it is not possible for employees to simply decide to work from home in light of the Government’s advice. There must be a discussion with the employer and, if the employer decides that the employee should wokr from home, the deduction will be available.

For example, if the employer cannot accommodate the employee in the office because of social distancing, then the employee would be entitled to claim. But where the employer offers the employee the option to return to work but the employee chooses to remain at home, the deduction is not available.

What costs can the payments cover?

An employee who either meets the usual rules, or falls within the temporary relaxation of regular home working as a result of coronavirus, can claim relief for the following expenses. With the exception of insurance, are very similar to the costs that can be reimbursed by their employer above:

  • additional heating and lighting
  • metered water

An employee cannot claim relief for the following expenses:

  • mortgage interest or rent
  • council tax
  • water rates
  • insurance

Where, as is often the case, it is not practical to calculate the allowable extra costs, then a claim for £26 per month (£18 per month prior to 6 April 2020) for monthly paid employees or £6 a week (£4 per week prior to 6 April 2020) can be made without having to justify the figure. This does not cover the cost of business calls, for which an additional claim can be made based on actual costs. This is confirmed in a recent update to HMRC’s manuals at EIM32815.

Where the employee works from home some, but not all of the time – for example they work at home three days a week and in the office two days a week – they can still claim the full £6 a week deduction. There is no need to scale it back just because the employee is not working at home on a full time basis.

Where the employer pays some contribution towards homeworking expenses, but not the full £6 a week or £26 a month, then the employee can seek tax relief for the difference.

How to make claims:

An employee can make a claim:

  • Online, with the new P87 micro-service which was launched on 1 October 2020
  • By phone
  • By post
  • Or, if they are registered for self-assessment, through their tax return.

Full details are available from GOV.UK and HMRC has a tool, to help guide employees to the most appropriate method for their circumstances. 

Claims for the homeworking allowance for 2020/21 can be made through the new micro-service even before the end of the tax year on 5 April 2021. HMRC have said that they will apply the relief for the whole year even if the employee then returns to the office before 5 April 2021.

Claims for homeworking allowances will not be automatically rolled forward into 2021/22 and it is not currently HMRC’s intention to extend the modified approach being applied to claims in 2020/21 to 2021/22. Anyone claiming homeworking allowance for 2021/22 will need to meet the usual conditions.

Purchases of Office Equipment

It is generally accepted that working solely on a laptop for long periods is poor practice, and can lead to discomfort and back pain. Many homeworkers will need additional equipment including monitors, keyboards and even desks and chairs in order to make a functional office space at home. Fortunately, following an announcement on 13 May 2020, some of the unintended outcomes which could arise here have been dealt with by the Government.

Employer purchase

If the employer has purchased and provided any necessary equipment then, provided there is no significant private use, no taxable benefit in kind arises on the employee.

(If there is significant private use, then a benefit in kind will arise and so employers may wish to ensure that their employment policies make clear that significant private use is not permitted.)

If, at a later date, ownership of the asset is transferred from the employer to the employee then a benefit in kind could arise.

Employee purchase and employer reimburses

In some circumstances, employees may have purchased their own equipment personally in order to get set up as soon as possible. Employers may even have advised this, and offered to reimburse the costs afterwards.

Usually, employer reimbursements of employee expenses are treated differently for tax purposes and this approach involving a subsequent reimbursement is normally taxable on the employee. This is clearly unwelcome, and therefore the announcement on of a temporary exemption from income tax and national insurance for such reimbursements is very welcome.

The relevant legislation took effect on 11 June 2020 and introduces a temporary measure for the period to 5 April 2021. Using their discretion, HMRC are treating the exemption as applying from 16 March 2020. Under the provision, any reimbursement by an employer for the cost of equipment is exempt from income tax and national insurance as long as it:

  • was provided for the sole purpose of enabling homeworking as a result of coronavirus, and
  • would have been tax exempt if provided directly by the employer.

Furthermore, any private use of the reimbursed equipment should not be significant.

As this exemption has been laid under powers provided for by section 210 of ITEPA 2003 (power to exempt minor benefits) – and equivalent sections for NICs – any exemption is conditional on the benefit being made available to all an employer’s employees generally on similar terms. Therefore, employers should ensure that similar reimbursement terms apply to all employees that need to work from home. It will not, for example, be acceptable for directors to ensure that they are reimbursed for office equipment but other staff are not.

If at some point in the future the employee returns to work and retains the equipment, HMRC have confirmed via guidance that no benefit in kind will arise at that point.

Employee purchases but employer does not reimburse

If the employer is unable or unwilling to reimburse the cost of equipment or office furniture, then employees will need to see if they are able to satisfy the conditions to claim tax relief through capital allowances.

This requires them to demonstrate that the equipment is used in the performance of their duties. Under current HMRC guidance, they are likely to struggle to obtain relief under capital allowances for office furniture.

This is because office furniture such as desks and chairs put the employee in a (more comfortable) position to do their duties. The items are not used in the actual duties themselves in the way that a laptop or printer would be. The Low Incomes Tax Reform Group in particular are urging caution here.

Accordingly, tax relief from HMRC is unlikely for the costs of office furniture and employees may wish to seek reimbursement from their employer. But tax relief for office equipment used in their duties is possible although employer reimbursement remains the better option.

Claims for office furniture cannot be made through the new online portal (microservice).

Remote Working Leading to ‘Hidden Fractures’ in the Workforce
October 16, 2020
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Hidden fractures’ caused by working from home are forming in the workforce and risk causing irreparable damage to cultures and productivity, according to new research from digital culture platform Totem.

The organisation’s survey of 1,000 UK employees found that while the shift to home working during the coronavirus pandemic has been a positive experience for many, there have been issues emerging around a lack of interaction, collaboration, recognition and support that could cause lasting damage to workplace trust, culture and engagement.

Nearly two-thirds (64%) of employees feel that working from home has had a positive impact on workplace culture, with the majority (61%) saying they are able to complete their work effectively while working from home.

But despite these benefits, Totem also found that while working from home, over half (55%) of employees feel it has been harder to work as a team, 54% feel less motivated, and 51% feel it is harder to reach out for help from teammates.

Totem warned that unless employers address these issues, surviving and maintaining growth as the economy recovers after the pandemic will be a much bigger challenge, particularly as remote working is likely to remain the norm for most in the short and medium term.

Marcus Thornley, CEO of Totem, said that businesses would have to find new ways to celebrate daily successes if remote teams are to stay motivated.

Speaking to HR magazine, he said: “The saying goes ‘out of sight, out of mind’ and, worryingly, for many companies working remotely right now, that may be the case as they struggle to communicate – and recognise each other’s successes – as they would in the office environment.”

The research also found there is a strong desire from many employees for remote working to continue.

While the majority (88%) of respondents worked from an office before COVID-19 hit, many people said they would now feel anxious (28%) or unhappy (18%) if their employer made it mandatory to return to the office full-time.

If they could choose, only 25% said they would work from an office full-time while 44% would choose hybrid working and the remaining 31% would choose to work from home full-time.

In addition to recognition (critical for 33% of respondents) the study found that accessible support and guidance when you need it (31%) was one of the most important elements to creating a positive remote working culture.

Thornley added: “First and foremost, business leaders need to design for remote. The reality is that many teams will have to operate on some sort of remote basis for the foreseeable future, so you need to ensure that you are working to create a shared experience, regardless of their location.

“For instance, although people may be sitting in their kitchen or living room, this doesn’t mean you can’t create meaningful experiences at key moments in employee life-cycles – whether that’s onboarding, promotions, new business wins, or leaving.

“If effectively supported, these key moments can positively shape sentiment towards employers, role and colleagues.”

Consumer research for the survey was undertaken on behalf of Totem by Pollfish, with fieldwork conducted online on 11September 2020.

Managing Your People Effectively in the Post-Pandemic Era
September 11, 2020
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By Tim Boag

The coronavirus lockdown has forced millions of employees to adapt to socially distanced working arrangements and working remotely – a trend many expect to continue well after the pandemic subsides.

Multinational businesses such as Facebook and Twitter have already moved towards making working from home the norm, a shift enabled by technology and telecommuting.

For small to medium-sized enterprises (SMEs) in the UK, who may not have the resources of larger firms, hybrid or blended working is more likely to become the new normal, where employees split their time between the office and home.

Managing colleagues remotely can be challenging. Homeworking can cause mental stress, video call fatigue, burnout and a craving for ‘real’ human interaction.

These factors are exacerbated by the added worry of the pandemic. In this climate, leaders need to establish how they can best manage their workforce, maintain good levels of productivity, and care for their employees’ mental and physical wellbeing.

Below are some useful tips to help manage your business during this challenging time:

Keep in regular contact with stakeholders and customers

SMEs should prioritise frequent communication with key stakeholders, whether they are colleagues or customers. Although face to face interactions are difficult right now, video conferencing tools – such as Zoom, Microsoft Teams, Skype, and Google Hangouts among others – make it easy to keep in touch with your stakeholders.

Instant messaging apps such as WhatsApp and Skype offer an even quicker way to communicate updates and information to stakeholders. Finding the right communication tool can often be a case of trial and error but it’s important to find the right one for your business.

Encouragingly, Aldermore’s recent research found that 30% of SMEs had actually increased the amount they communicate with customers and clients during the pandemic.

Of course, while frequent communication is crucial for maintaining employee morale and keeping on top of workloads, it’s important not to go overboard and inundate your people.

Find out what frequency works best for your organisation. If daily calls are causing fatigue among employees, switch to having them every other day or even weekly.

Embrace technology

Communicating well with stakeholders from home often relies heavily on technology. Aldermore’s research found that one in five (20%) SMEs wanted more guidance on how to improve the technological capacity of their business.

One simple way of improving capabilities, is to provide employees with the necessary IT tools – whether that means providing training, a sufficient laptop, a monitor, mouse or headphones, they should have the tools they need to work from home effectively.

Technology can also play an important role in improving interactions between a business and its customers. To ensure our brokers and SME customers were backed throughout this crisis we fast tracked the launch of our online broker portal, Asset Backer, to all our intermediary partners. Asset Backer offers an electronic, paperless end-to-end process, which allows businesses to continue working with customers remotely.

Have robust cyber security measures in place

Mass working from home has created more opportunities for fraudsters to target companies and their customers. Since February for example, over 2,100 COVID-19 related scam cases have been reported to Action Fraud.

Given the heightened risk, it is important companies have robust security measures in place to protect their business. Even simple steps such as reminding employees to regularly change their passwords and keeping their laptop locked when not in use, can go a long way to protecting a business.

Employee wellbeing has to be the number one priority

During this pandemic, it is crucial that businesses focus on the wellbeing of their people. Leaders need to be even more conscious of someone’s personal circumstances and show flexibility towards them, for example allowing those with childcare commitments to flex their working hours.

Keeping morale high can be difficult in these challenging times, but organising virtual coffee catch ups or quiz evenings can go a long way towards boosting spirits. As humans we all need that social interaction, sense of belonging and shared identity that has been put under pressure by lockdown.

As the economy emerges from the gloom of the pandemic, businesses leaders must face up to the prospect that a large proportion of their colleagues may want to continue working at least part of the time out of the office.

When managing a workforce at a distance, it is vital that leaders keep in frequent contact with their stakeholders, embrace technology, monitor and respond to the wellbeing of their employees.

By doing so they will be able to reap the benefits, including increased productivity, improved employees’ morale and enhanced efficiency.

Tim Boag is group managing director of business finance at Aldermore

Majority of UK Workers Say They Work Effectively from Home
May 22, 2020
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Over half (55%) said their industry as a whole can operate effectively based on remote work.

The LinkedIn study, which is run fortnightly, also showed that UK confidence about jobs, finances and careers sits at +13 on a scale of -100 to +100. This is more positive than negative, but only slightly.

From the data across April, it emerged that those working in the healthcare sector felt the most confident, at +24. They were particularly optimistic about their job security.

On the other hand, education professionals were among the least confident, sitting at a score of +10. They felt particularly low levels of confidence around progressing their career in the next year.

In terms of job-seeking, survey respondents felt generally pessimistic. When asked about their confidence in their ability to get or hold onto a job, the average score was -7 on the index for the week from 27 April to 3 May, down from -2 between 13 and 19 April.

Those working in sales were the most pessimistic, with 77% expecting the number of available jobs to fall in the next two weeks.

Martyn Dicker, director of people at Unicef UK, told HR magazine that it was unsurprising to see that two-thirds of UK workers believe that they are effective when working remotely. 

In addition to technology’s ability to facilitate remote work, Dicker said: “I also believe that a key ingredient of workers feeling that they are effective, is their strong desire for it to work.

“We know that greater flexible working is desired by many, with the CIPD 2019 Job Quality Index stating that 68% of UK employees would like more flexibility. It’s worth noting that this is just 2% more than the 66% believing that they are effective in the LinkedIn study. 

“The UK fares particularly poorly when it comes to job demands interfering with family life, so maybe this forced home working experiment will provide UK employers the impetus to drive change and embrace more flexible working.”

LinkedIn’s study also showed that optimism about company futures was low.

The study found that only 22% of those at director level or above thought their company would be better off in the next six months, with 45% saying they thought it would be worse off.

Among those in non-management roles, 18% believed their firms would be better off and 37% thought they would be worse off.

Emma Jayne, area director of people and culture at the Dorchester Collection, said: “The future is so uncertain right now and it is at the forefront of people’s minds constantly I’m sure. 

“As employers it’s important that we are offering regular, clear and honest communication on the situation our businesses are in and if we can offer reassurance then that should be the very first thing that we are doing. 

“It’s a rollercoaster ride of emotions at the moment and HR’s most critical role right now is to take care of the mental wellbeing of their people.

“The results around the outlook for the next six months I think are very realistic. Despite the government encouraging a return to work to boost the economy, the reality is the economy is going to take a long time to recover from COVID-19.”

Finally, the index found that 49% of UK workers plan to increase the time they’re spending on online learning in the next two weeks, corroborating other recent studies on the upskilling trend.

Nearly half (48%) said they hoped this learning would advance their career path, while 47% wanted to learn something unrelated to work. 

A third (32%) were interested in improving their emotional wellbeing through online learning, while 30% wanted to contribute to society and help others.

Jayne added: “Online learning is such a gift at the moment. We are all in our homes with some time on our hands which is very different from the fast pace of life that used to be’ normal’. 

“I am certain we will see an upswing in a more joined up and kinder society when we come out of this pandemic, I wonder if people will be inspired by the amazing work of the NHS and other services and they will see an upturn in people wanting to pursue a career in those fields.”

The LinkedIn Workforce Confidence Index surveys around 1,000 UK LinkedIn members in each wave.

8 Tips for Working From Home or Remotely
March 12, 2020
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A Three Minuted Read by  Marielle Leon

Whether you’re a gig worker or a digital nomad, a full-time employee with remote status or an onsite employee suddenly asked to work from home, here are eight tricks to getting the work done well, keeping pace with your colleagues and peers, and taking care of yourself in the process.

Rear view of businesswoman using computer at desk in home office
Here are the eight tricks you need to be an excellent remote worker:

1. Dress the Part. It can be tempting when you’re working from home to stay in your sweats all day, but it’s worth taking the time to feel polished. Put on a crisp shirt and slip on some dress shoes. Not only do you feel like you’ve made that essential shift from relaxing-at-home to kicking-ass-at-home, you’re always ready to jump on a last-minute video call with a colleague or client.

2. Invest in an Ergo Setup. Once in a while, it’s a nice change of pace to work at the kitchen counter or from the couch (just like once in a while you can justify staying in your jammies). But if you’re working at home regularly, it’s important to make sure your workstation is on point. That means using an external monitor in addition to your laptop, making sure it’s at eye level, adding a keyboard that allows your hands to rest naturally, and using an external mouse to keep your wrists and forearms healthy. Use an ergonomic chair and be mindful of your posture.

3. Keep your Calendar Current. To avoid having someone in the office or at a different location ever wonder where you are, make sure your calendar is always up to date and accurate. Whether you’re on a work call or stepping out on a quick walk to clear your head, throwing a busy status on your calendar can help keep people appraised of your availability.

4. Know When to Step Away from Your Desk. Don’t make the mistake of being chained to your desk. When you’re not present in an office, it can be tempting to go to extreme measures to ensure you’re constantly available for colleagues and clients. But as a remote worker, you need a break once in a while as much as someone working at HQ. Be sure to carve out time to recharge your battery with a walk, a workout or an actual sit-down lunch – just err on the side of transparency.

5. Get Creative with Team Meetings. In the interest of changing the scenery and getting some fresh air, consider scheduling a call instead of a video conference so you can take a walk while catching up with a colleague. Just like you might step out of the office with a teammate, head outside with your earbuds and carry on with your conversation. If you need to follow an agenda, use a checklist on your phone or a notecard in your pocket to reference along the way.

6. Figure Out How You Focus Best. Sometimes the silence of working from home can be deafening. If having background noise helps you dial in, queue up a chill playlist. If the sounds of construction outside your window are distracting, wear noise-cancelling headphones. And, by all means, if your roommate or kids are home, find a way to keep the interruptions to a minimum.

7. Lean Heavily On To-Do Lists. Without the typical rhythms of office life, like the halls bustling every hour on the hour as people walk between meetings, working at home can feel like one big, overwhelming swath of time. Write a to-do list for yourself in order of priority – tackling your hardest project first, of course – each morning and don’t diverge from it. Do the same thing at the end of the day so you know exactly where to start in the morning.

8. Honour Quitting Time. Working from home can be a blessing and a curse, but there are ways to make it more of the first. When your place of work is also your place of rest and relaxation, it can be much harder to set boundaries. It can even feel like you’re never fully working…but never fully relaxing either, which is bad for everyone – especially you. The key is this: When you’re working, go all in. And when it’s time to quit, close your laptop and walk away. That list you made for first-thing tomorrow will be waiting for you, which is half the battle.