Home working and tax

David Wokes:  Good morning everybody.  Hello, this is David Wokes from the Advantage Group.  I very much welcome to this presentation and webinar that we are doing with our partner Gowling WLG and the topic today is a follow on from our suite of events that we are running.  We are joined by one of our partners and the experts from Gowling WLG who is going to be talking about home working and tax, a key area that we have to make sure that we covered right now as we start to really change our whole approach to work and the whole return to work environment. 

Advantage Group as you may well know, or you may well understand the Chrone Corkhill brand more than the Advantage business itself is part of the Recruit Group globally.  We are involved with a number of different service offerings and as you can see from the slide here we have an extensive base of coverage in the UK. 

Working through the three main service offerings that we have of Advantage Resourcing which is our national recruitment consultancy business which specialises in a number of different areas.

Advantage XPO and we talk about a number of our managed service agreements and RPO programmes that we provide, identified on this slide of the BT and EasyJet for example.

And then Crone Corkhill which provides a very much a specialist service for EAs, PAs, secretarial, financial and professional services recruitment in the London area.

The core services that we provide are broken down into these four areas.  So we are very much specialists in working with people to understand how we optimise the recruitment progress, process rather.  How we access the talent for you and maybe identify how we can work with you to build your talent programme to give you the best candidates using the various channels and the experience and expertise that we have. 

Today we are going to be working around our consultancy services.  That is very much around our new secure restart programme and we are going to be progressing that on into other areas including legislative support for the forthcoming IR35 as well as working with businesses about how you develop your own brand and your own value proposition.

And as a business we are very much led by the drive to use innovation.  Technology is transforming the recruitment market.

So today as I say is all about our consultancy service and our partnership with Gowling WLG.  So I would very much like to introduce our partner now, who is going to be concentrating on, as I say, the home working and tax situation, so over to Zoe Fatchen who will carry on with the rest of the presentation.

Thank you.

Zoe Fatchen:  Thanks David.  My name is Zoe Fatchen, I am a partner in the tax team at Gowling WLG and we very often provide advice to employers, principally rather than employees, in relation to employment taxation, including information and advice about what sort of expenses can be either reclaimed by the workers from their employer or where tax relief is available in relation to certain expenses incurred in connection with home working.

So today's webinar is focused solely on tax reliefs and reclaims for employees.  We are not looking today at people who have a self-employed status for tax purposes.  So this is really just your employees and it is not relevant for anyone who provides consultancy services on a self-employed basis or who is providing services through a personal service company, for example under IR35.  Those rules are different and I are not within the scope of this webinar.

So we have lots of questions that we have been asked in the last few months as you can imagine.  Because we are in such a different circumstance and there are so many more people working from home than ever before but the number of people working from home was already on the rise.

So as we know the Office of National Statistics published some information which said that between 1998 and 2014, so even up to six years ago, the number of individuals working from home increased from 2.9 to 4.2 million.  But now of course that number is much higher and as we know anyone who is working from home may well incur additional costs in doing so because a lot of the equipment on the services that would normally be provided in an office environment have to be provided from home instead, and in some cases the individuals will incur those costs directly and in other cases the employer will either provide the equipment or will reimburse the cost incurred by the employees in providing, in sourcing that equipment for their own use. 

So we need to look at the different ways of incurring those expenses and also the different ways of covering them off, reimbursing them, getting tax relief in relation to them.

So there is a wide range of different expenses that can be incurred in connection with home working.  Typically we think about office expenses, that would be things like equipment, so that could be IT equipment for example, if you have a workforce who are using laptops but who might need fixed screens or who might need more convenient keyboards for use, if they are using them every day and not just occasionally.  Equipment might mean desks and chairs, even basic equipment.  It could mean printer cartridges, it could mean stationery. 

Services would be things like utility bills which might be increased because someone is working from home.  There could be additional services provided by the employer to the employee and then supplies is really the office supplies.

So the first criterion that we always look at is use for business purpose, so it will only ever be possible for an employer to provide equipment services or supplies to an employee for their use without incurring a tax charge if those goods are being used and services are being used for business purposes or if any element of personal use is really insignificant and that test applies in slightly different ways to different types of equipment services and supplies because over the years the rules have evolved differently in relation to different items, and so as we go through this webinar we will look at some of those specific cases and see how those apply.

So the criteria include the reasons for the need to work from home either for example because the equipment that they need is not readily available in the office or because their work means that they have to live too far away from their work place to travel there every single day.  So there is a reason why they are obliged to work from home.

Of course, looking at the situation we are in at the moment, COVID-19 is a very good reason why individuals might need to work from home rather than travelling into the office, particularly if public transport needs to be used and where that work can be done safely and properly from home in line with the Government's guidelines Better In Place.

OK, so looking at the amount of expenditure to be incurred then, we are looking at the amount that is not more than the additional household expenses.  So simply running a house or running a flat will involve the incurring of expenses which are required just to keep it running, so what we are looking at here is the potential for reclaiming the tax in connection with the extra which is incurred as a result of this additional working from home.

Now as you can imagine it can be quite difficult to identify what that excess amount is.  So the Revenue have established a weekly limit which is a basic amount which can usually be recovered as a result of additional home working.  It is possible to claim amounts over and above that weekly limit, we will come onto that in a minute, so if the amount being claimed is not more than the current weekly limit then that means you have minimal requirements to show the additional the expenditure, minimal requirements to document it, you do not really need to prove that additional expenditure has incurred.

So if someone is obliged to work from home whether it is due to COVID-19 or not, the employer can choose to pay up to £6 a week or £26 per month for individuals who are paid monthly.  So if you have employees who receive their wages weekly then up to £6 a week can be taken into account and then if they are paid monthly £26 a month would be the relevant sum.

Previously that was less generous, so in the previous tax year it was only £4 a week or £18 a month and that of course reflects the inflation in costs that we see. 

So this only applies where someone is obliged to work from home.  If they choose to work from home on a voluntary basis and home is not their primary work place, there is no reimbursement.  If someone has a long-term working from home arrangement with the employer then in those cases it can also be possible to reclaim the weekly limit.

Now that weekly limit applies to additional expenses generally and they are the kind of expenses that you would expect to incur on a monthly basis.  So that can include things like additional costs of electricity, additional costs of gas for example if someone is home during the day and then needs to keep to their home during the day in a way they would not normally need to if they were in the office because there would not be anyone there in the house.  It can cover metered water, so if someone is on a water meter and is paying according to usage then it cover that. 

What it cannot cover is any kind of flat rate charges, so you cannot use this towards council tax because that is payable anyway, it cannot be used towards water rates which are standard monthly rates either.

OK, so the reimbursement is not allowed for costs which are attributable to things which are used for mixed purposes, so for both private and business use.  There are some things in the home which are expenses that you can see very clearly would be used both for business purposes and significantly for private purposes.  That might include, for example, the rent, the mortgage, the kind of flat rate charges that I have already described, water rates, council tax, that kind of thing.  But also, interestingly, internet broadband connections particularly in these days of streaming media for entertainment, the Revenue take the view that broadband in a home is going to be for mixed personal and business use and not for business use only and so therefore they will not typically cover broadband costs as part of the allowable expenses on which tax relief can be claimed.

So as well as incurring extra costs on utility bills and things like that, employees may have to buy additional equipment in order to carry out the work.  Now some employers have been loaning equipment to employees, so providing it to them on a temporary basis and that might include, for example, taking home your office chair for the duration of COVID-19 lockdown or your working from home period as lockdown becomes eased in certain respect but home working is still encouraged, so it could be office chair, it could again be monitors and computer equipment which are borrowed from the office and which will then be returned again to the office when normal work resumes. 

So that kind of equipment does not incur any kind of cost to the individual, also does not incur any kind of tax charge for either the employer or the employee because very clearly that kind of equipment is being used for business purposes, the ownership of that equipment is not passing to the individual employees, so that is all very straight forward as far as the tax treatment is concerned.

Where equipment is not provided by the employer, it may be that the individual is paying for that equipment out of their own resources and then either the employer will reimburse the cost of that or they will not.  If they do not reimburse the costs and so the individual is paying for that out of their own pocket then they will be able to reclaim that cost under their own personal tax return at the end of the tax return and you have to look at their at the annual investment allowance and that is deducted from typically income, income and gains before tax in the personal tax return.

Of course that does not help anyone as far as immediate cash flow is concerned because it is a tax return adjustment rather than immediate reimbursement, so wherever possible very many employers are reimbursing that cost under an expenses policy in the short term.

The good news about the annual investment allowance however is it is very generous, it has been going up year on year and for the current tax year it is £1 million.  Now that sounds like a lot of money and so you think well I can buy a lot for that, but be aware because the kind of equipment that qualifies within that limit is quite closely defined, it has to be defined as equipment which is clearly for business use only and which will not be used for any significant personal use as well.  So just because there is that £1 million limit do not assume that it is generous in other respects. 

The reason that limit is so high is that that allowance is also available to people who are setting up a brand new business themselves for the first year for example fit out a restaurant or a hotel or a shop or a factory so that is really aimed at equipment perhaps manufacturing equipment may be expensive vehicles, things that need to be brought in the first year in order to set up a business, so that £1 million allowance was never established with the idea of people working from home in mind, it is simply the right box to put your claims in if you have home working expenses which qualify for the tax relief but which the employer is not reimbursing.

So as I said, the AIA is claimed in the tax return.  Be careful though because if for example you were to buy an all singing all dancing home computer set up, laptop, printer and everything else, use it for six months to a year and then at the end of that year find that you are going back to normal working practices and you no longer need a set up like that because you are back working in the office full time and decide to sell it for whatever reason, anything that you receive by way of proceeds when you sell that item needs to be taken into account in the following tax return and so there can be an adjustment, because that investment allowance is for the actual expense that you incur in relation to the item, bearing in mind the price you acquire it for and anything you receive if you were sell it at the end of the period.

So that is like capital allowances of other types that you might be familiar with in an office environment towards the purchase of plants and machinery for office purposes, for example.  So that is called a balancing payment.

So the annual investment allowance does not apply to cars which of course have their own tax regime.  It does not apply to any assets which the individuals might already own but have used for personal purposes before and are now using for business purposes.

So let us say someone had a study with a desk and a chair and a home computer in it which previously they simply used at weekends, evenings, in their spare time for personal purposes.  If they suddenly find themselves using those items for business purposes instead of private purposes, you cannot apply the annual investment allowance to those because the items were not bought specifically for business use and of course it cannot apply to gifts because in relation to a gift you are not actually incurring any expense because the item has been given to the individual.

OK, let us move on.

So mobile phones.  Again, mobile phones, there are some quite complex and involved rules around and that is because of various tax avoidance schemes that were put in place historically when mobile phones were first introduced and first became popular.

Now when we think about mobile phones and expenses for business purposes we are really thinking about the cost of providing the device and the cost of calls, but of course these days so many people have smart phones which can do all manner of other things.  The guidance says that a smart phone is still a mobile phone for this purpose and the fact that it can have lots of apps on it which do other things is not really relevant to the tax treatment unless the doing of those other things means that you have data charges which are referable specifically to private use on a pay as you go basis.

So what do the rules say in relation to mobile phones?  Well the basic rule is that at an employer can provide one mobile phone or one sim card for each employee for their use for business purposes without any income tax or national insurance contributions arising.  And the reason they say one mobile phone only is because previously the rules did not specify one mobile phone and there are all sorts of providers, tax boutiques out there marketing arrangements whereby an employee could enter into salary sacrifice and they could receive and return a number of different handsets which could be used by different members of the family and clearly there we are not talking about wholly and exclusively or even necessary in the majority of business purposes, so there is not tax relief for the provision of mobile phones to family members or anyone else and they would also say that you can only speak on one mobile phone at a time, so one mobile phone is enough.

If they do provide any additional telephones to one individual, then that additional phone will lead to a tax charge for the individual on evaluation basis as if they have given the individual any other kind of asset.  So if they give it to them outright then they would taxed on the value of the phone that they have received and then if it is leased to them, you look at leasing values and that sort of thing.  We are not going to get into that in any detail today.

In order to be able to provide a mobile phone without the income tax and NIC costs it is really important to make sure that the employer is entering into the contract with the mobile phone supplier or provider of the network, whoever it might be.  The contract must not be between the employee and the supplier.  If the contract is between the employee and the supplier the rules work in a very different way.

Again going back to those tax avoidance type arrangements, for those historic reasons, if you are dealing with the cost of providing a mobile phone by way of salary sacrifice, then that needs to be reported on the P11D for that individual.

If the employee arranges for the phone to be provided then again you have to look at the way at which that provision works, the way the contract works, the way it is all set up because in some circumstances it is possible that there might be a class 1 national insurance charge payable in connection with the provision of that service, because they would say that this is not an employer phone which is being supplied to the individual, it is an individual's phone which the employer is paying for, it is different contractually and it is different conceptually.

So we have the mobile phone and we have worked out whether or not there is tax payable in connection with the provision of the handset.  What happens to the line rental and the payment for calls? 

Well if the employer is providing a phone which is a contract basis and you have a fixed sum per month with either unlimited data or some sort of data limit and then calls included in the package, then typically that package can be provided without a tax charge arising as long as it is within the set limits.

If the employer is reimbursing business calls which are in excess of the monthly contract limit, so let us say someone has 200 minutes a month on a fixed contract and then they actually spend 250 minutes in that month on that phone, then of course there will be additional charges payable for the extra 50 minutes.  If those extra 50 minutes are business calls then the employer can cover that cost without there being any charges to pay. 

Similarly if the individual owns the phone and they incur business calls on pay as you go basis, on a pay as you go sim, for example, and then the employer covers the cost of those business calls, that is fine, it still has to be reported on the P11D as a benefit but it is not a taxable benefit.

What happens if someone spends time on their work supplied mobile phone and they engage in private calls and they go over the limit.  Well clearly if the employer is reimbursing the individual for the cost of private telephone calls then that is a fully taxable benefit, income tax and class 1 NIC will apply, but if they have not spent up to their monthly limit then there is no tax on private calls within that monthly tariff.

OK, let us move on, I think that is enough about mobile phones for now.

So there are some general rules in relation to the provision of assets services.  We are looking at the reimbursement at actual reasonable business expenses and those expenses can be over and above the flat rate limit that we described earlier so it could be over and above the £6 a week.  If it is above that £6 a week / £26 a month, then you will need to have good evidence to show that those have been properly incurred and incurred in relation to business use and because of that, because of the difficulties of evidencing that and how cumbersome that can be, particularly for employers with a large number of employees to deal with, typically an employer will say as a matter of policy we will reimburse you up to the flat rate and then it is for those individuals if they have incurred significant additional costs to then go to the Revenue, fill in their tax returns and reclaim the additional expenditure themselves.

So you can have that approved general limit that we have been discussing.  In some cases a flat rate can be agreed specifically with HMRC on a business by business basis, that typically depends on the nature of the work, the nature of the role and the kinds of expenses that you might expect to be incurred in connection with that. 

So for example, someone who is doing a lot of design work, who perhaps needs a more sophisticated IT set up at home, might be able to reclaim additional expenses and if you operate a business which has a lot of employees in that category you might well be able to agree with HMRC a somewhat enhanced rate taking that into account and then that will apply in respect of all of your employees.

OK so mileage and the use of personal cars.  This is one of the most common areas on which we receive questions, and of course the first and most basic rule in relation to mileage is you cannot claim tax relief and you cannot claim mileage expenses in relation to normal commuting.  So normal commuting from home to the usual place of work.

Now although it has been a good few months now since lockdown began, it might start to feel as though for many people home is their new normal place of work, of course for tax purposes the Revenue are not likely to say that that means that their place of work has permanently moved to the home address, they would say that that is an emergency measure and therefore their normal place of work will continue to be wherever they were working before the COVID scenario really began.

Depending on how long this carries on it will be interesting to see whether that changes, but certainly for now, if you have someone who has been working from home the entire duration of lockdown and they feel as though home has become their normal place of work and then suddenly they are going into the office for a day or two, that does not mean that suddenly they can claim mileage for getting from home to the office as being an exception because that would still be regarded as normal commuting for tax purposes.

So no mileage for normal commuting.  No mileage expenses for commuting from home to a usual place of work and of course under the well established rules an individual might have more than one usual place of work depending on how they tend to operate.

So there is some variation in the mileage expenses that can be claimed depending on the nature of the vehicle.  So typically you would see the expenses claim being up to 45 pence per mile for a car and then that applies for the first 10,000 miles and after 10,000 miles it is 25 pence a mile.  For motorcycles it is a flat rate of 24 pence a mile and for bicycles that would be 20 pence a mile.  So it does vary depending on the mode of transport and it also varies depending on how far the individual has travelled and again mileage expense reimbursements go on form P11D.

We are sometimes asked what happens if an employer's mileage expenses policy is less generous then the 45 pence per mile paid by the Revenue.  What happens if in order to avoid having to benchmark where that 10,000 miles comes in an employer says we will only pay you 25 pence per mile regardless of how many you have done in that year.  Well in that case the employee can reclaim the difference from the Revenue and in most cases they would do that, again through their tax return so having to wait until after the end of the tax year before they put in that claim and then get the benefit for tax purposes of what they have spent, and that is known specifically as mileage allowance relief on the difference, so they would need to enter into their tax return how many miles they have done, they would need to know how much they had been reimbursed already by their employer and then make a claim for the difference.

There is an operational reporting scheme so the mileage allowance relief operational reporting scheme MARORS, which employers can join to allow employees to claim the difference.  Some employers find that useful, others do not and prefer to leave it up to the employees to claim themselves, so if MARORS is something that you run or something you are interested in that is something you can look at separately and in more detail.

OK, so as I said employer's policies do vary quite considerably and employer's policies in relation to items that they supply particularly in context of COVID may well vary.  So if items have been bought by an individual and paid for by the employer on expenses, depending on what the employer's policy is they may ask that the individual returns those items to the employer at the end of the COVID period or at some later date or when the individual leaves their employment, for example. 

If they do that of course the ownership of the item will not move to the employee at any time, they are simply being loaned those items for business use and if they are being loaned them and then they are giving them back, again you would not necessarily expect there to be tax charges arising although it is useful to be careful about that and check those rules out in individual cases because as I say this is just a description of the general rules and there are bound to be exceptions and special cases arising.

If items are provided by the employer and they want them back, in most cases the employer will pay for the postage and that should be fine as a business expense.  Or if the individual pays the postage the employer may well reimburse those costs or if the employee incurs the costs of posting them back, sending them back, they may well be able to claim those costs in their personal tax returns.  Again they would need to look into that in specific cases.

If the items are not returned to the employer, if they are not taken back at the end of the period and instead they become the property of the individuals without the individual having to buy them, so they are acquired either as a gift or for a value which is much less then their residual market value then there is likely to be taxation on the residual value at the time when that gift or transfer of ownership happens.  Because what you have then is an employee who is acquiring an asset which might of otherwise be a benefit, and again in the individual's personal tax return if they are then only going to use those items for business purposes you would expect that relief should be available for that tax, and that might well be capital allowances claim where someone has incurred actual expenditure on something at the end of a period albeit at a fairly low sum which they are going to use on an ongoing basis for business purposes.

So as you can see lots of different types of expenditure that might be incurred by employees and that expenditure can arise in a number of different ways, either direct provision of the goods and services by the employer or the employee pays for it out of their own resources or the employee pays for it and then is reimbursed by the employer.

We have been through a number of different categories and seen that those are taxed in different ways, but overall the most valuable ones to look at are the home working office expenses because we have seen those arise much more over COVID-19 then ever before and then thinking about mobile phones particularly if staff are using mobile phones for business calls much more than they ever have been before or if new mobile phone contracts are being entered into specifically to provide employees with phones or other equipment specifically to deal with COVID-19 and to keep businesses running smoothly as we go forward.

So I think that brings us to the end of our slides for today and I will pass back over to David.  Thank you.

David:  Thank you Zoe, that is very informative.  I think it is fair to say we all know it is going to be a complex market place and very different arena for all of us so it is useful to get that information and to understand it I think in layman's terms really as you put that forward.

Just for everybody's information we will be able to share the slides that Zoe has used there if you are interested in that there will be further contact details either directly to Zoe or ourselves at Advantage Group, so please email in and we will be able to share those slides. 

We will also be putting a disclaimer on there for our partners Gowling WLG, just obviously to advise that any specific tax advice that you will need or would be looking for, we recommend, that you do work with your own tax adviser to make sure that that is provided.

So I just want to finish of now, we have a couple of slides on the Advantage Group and what we are doing.  So as part of the whole COVID situation we have developed our own programme which is called Secure Restart, there are a number facets to the programme as you can see from the slide here.  Very much around how ready is your business and obviously we are a long way down that path nowadays in terms of what is safe and what is effective, so getting people back into the workplace. 

There are a lot of people still needing some further information and so what we have developed is our own support mechanism around Secure Restart touching on the factors that are on the right hand side of that slide there of how we can support you and you will be able to access the Advantage Resource book via our website.

There are a number of different activities that we can support you with, give you some information, direct you to other partners that we have whether it is from the legal point of view with people like Gowling or other businesses that will be useful to you as you start to get employees back into the work environment.

One particular factor that we have is the Optics option that we have recently developed as part of Secure Restart.  The Advantage Optics is the opportunity to free activity at this point where you can contact us via this email address or via the Chrone Corkhill team directly, if you are already engaged with them. 

The idea being that we can provide you with information and insight into your business the talent and recruitment activities that you may well now be experiencing and then the insight will give you a number of different factors which you might find useful regarding the sector that you are in, the local region that you are in even, as well as the business market place and this will hopefully help as you are starting to look at what you need to do both for reengagement and engagement of new people into your business as things change and as we can see from what Zoe has presented it is going to be a very different working environment.

So if you do have any other questions generally or regarding the tax situation that Zoe has produced and you want the presentation, please email in to ourselves at the Solutions email address shown.  If not we will look forward to, hopefully, having you involved in any of the future events that we will be putting on.  I think we are going to have a short break over the coming weeks with the remainder of the summer holiday period but we will certainly be looking to follow this feature and to new events and new activities over the coming weeks. 

So thank you very much to Zoe and to the Gowling team for pushing this forward and giving us the information in the topic and we look forward to speaking to you all again very soon.

Thank you.