HM Revenue & Customs has offered various tax reliefs while employees were required to work from home during the pandemic, but these will soon come to an end. Nick Bustin and Dinesh Pancholi look at what this could mean for employers who have made hybrid working a permanent fixture.
Following the recent removal of work from home guidance in England and Scotland – although home working is still being encouraged in Wales and Northern Ireland – thousands of workers have began to return to their offices for at least a few days a week.
It is now clear that many organisations plan to adopt hybrid working arrangements on a permanent basis, but there are a number of important employment tax and benefits issues that they should keep in mind.
Employees who have to commute to work may have previously received some form of travel reimbursement from their employer if they were mainly working from home during the pandemic, which would be taxable and liable to National Insurance (NIC). But now, hybrid working raises the question of where the employee’s permanent workplace is, and if reimbursed travel expenses are considered taxable.
For tax purposes, a home can be a place of work, but is not always a permanent workplace – to be a permanent workplace, the employee must be required to work from home and perform substantive duties there. However, HM Revenue & Customs (HMRC) emphasises that in most cases, it is the employee’s personal choice to work from home.
Ordinarily, a permanent workplace is any place where an employee’s attendance is frequent and follows a pattern. Travel between two workplaces is considered business travel; however, if one of those locations is the employee’s home, HMRC may contend this is ordinary commuting (unless home is a “permanent workplace”) and any reimbursements are thus taxable and liable to NIC.
A temporary workplace is where the employee performs duties of “limited duration” or for a “temporary purpose”. If an employee works at the same place for more than 24 months continuously, it is considered their permanent workplace. HMRC defines continuous work as doing at least 40% of your work from a single location.
The key question is whether an employee’s presence at the office has now become temporary or is simply the normal performance of their role.
Hybrid working arrangements must be carefully structured for home to be a permanent workplace, and travel to an office may still be taxable.”
Under hybrid working, an employee may have a pattern of home and office working. In this case, any attendance at the office would be “in the performance of their duties” and the office would be their permanent workplace. Any reimbursed costs for travel from home to a permanent workplace are taxable and liable to NIC.
In contrast, if the company no longer has an office and employees are forced to work from home, their homes may now be considered permanent workplaces. As a result, business travel can be defined as travel from those residences to other temporary workplaces, and tax relief given to any expenses reimbursed.
Hybrid working arrangements must be carefully structured for home to be a permanent workplace, and travel to an office may still be taxable.
Temporary tax reliefs
During the 2020 lockdown, HMRC launched several tax reliefs to help support people working from home. However, these benefits are due to end on 5 April 2022, so it is worth both employers and employees understanding the steps they can take before these reliefs come to an end.
Working from home allowance
In line with HMRC’s home working guidance, employers can pay staff £6 per week tax-free to cover increased energy costs incurred while they are working from home. No records are required unless more than £6 per week is claimed.
Employees whose employers do not cover these costs may still claim tax relief on £6 per week as additional household expenditure through the government microsite. Employees can claim this tax relief for the entire year, regardless of the days they worked from home.
The tax code is amended to provide tax relief, and if the employer does not pay the full amount, the employee can claim tax relief for the difference.
From 6 April 2022, employers might want to consider adopting a formal home working arrangement, if they haven’t already, to use this exemption and pay the tax free allowance.
Purchasing equipment for use at home
Home office equipment is tax and NIC exempt if the sole purpose is to allow the employee to work and there is insignificant private use. The employer must retain ownership of the equipment to qualify for this exemption and should take care when updating or replacing old equipment so that the ownership does not pass to the employee.
A temporary tax and NIC exemption allows employers to reimburse employees for expenses incurred due to working from home if it is available to all employees on equal terms.
HMRC has confirmed that no benefit-in-kind arises should employees resume work and keep the equipment, because there has not been a transfer of ownership.
Cycling to work
Many employers have a cycle to work programme to assist employees with their commute. In these schemes, employees are expected to cycle to work for at least half of their commutes (however, those who joined before 20 December 2020 are exempt from this requirement). Employers must also undertake an annual audit to ensure any company bicycles are used for qualifying trips only.
Other hybrid working benefits
There are also a number of additional benefits employers can offer under hybrid working arrangements that are not subject to easement. For example, some employers may wish to provide a company mobile phone or sim card.
Hybrid working may affect the perceived value of some more traditional benefits for employees. As some benefits become more appealing, employers must decide if company cars, workplace parking, and season ticket loans are still a viable offering.
Many employers will be deliberating whether hybrid working arrangements should be a permanent fixture. In particular, it is important that they regularly audit any policies across and seek expert advice to ensure they fully understand HMRC policies on hybrid working benefits.