Whilst we were going through the annual P11D preparation season, we were asked many times about the tax treatment of homeworking equipment bought for staff during the lockdown.
Much of the equipment was bought after 5 April 2020 and therefore falls into the tax year ended 5 April 2021. The impact is that it is not relevant for the P11Ds of 19/20. Despite this, it is sensible to understand the tax treatment now so records can be kept justifying the tax exemptions that staff will be expecting.
Many employers, including ourselves, have made considerable acquisitions of assets to allow staff to work from home. Typically these are chairs, desks, laptops, second screens and other IT equipment.
There is an exemption from tax for the provision of assets which help employees to do their jobs. The exemption applies if any private usage by the employee is minimal. There is no statutory definition to determine the private use that can be made of the asset and therefore current feeling is to apply common sense.
Of course it is difficult to police the amount of private use of an asset and therefore HMRC take a pragmatic view. If the employer communicates the expectation that private use is kept to negligible levels then they do not expect a benefit to be reported.
In the unusual circumstances that there is to be significant private use, the employee could make a contribution towards the cost of the asset, accept that it is an item to be reported on a P11D or the employer could enter into a PSA to pay the resulting tax.
Further evidence that there is not expected to be material private use would be reminders to employees that the asset remains the property of the employer and would be expected to be returned when the lockdown ceases, or when the employee leaves employment.
Some employers found that it was difficult to source equipment at the start of lockdown. This may have been due to the large numbers of employers trying to source similar equipment. As such, some employees found that they were sourcing assets themselves and re-charging their employer.
The legislation surrounding re-charge of costs reimbursed to employees is quite restrictive. Experience has taught us that HMRC can apply these tests with little discretion and this can lead to unexpected tax liabilities. Fortunately HMRC announced a temporary Income Tax and National Insurance exemption for expenses reimbursed to employees to cover equipment bought to allow them to work from home. The exemption is intended to apply until 5 April 2021. HMRC should be applauded as it indicated that the exemption will be backdated to the commencement of lockdown, despite lockdown being almost three months prior to the exemption becoming legislation.
When an employee is required to work from home it is possible to pay them a fixed £6 per week without tax to contribute towards the cost of working from home. This is to cover marginal costs that the employee will be incurring such as light and heat.
The £6 is designed to prevent the employee having to keep records of the additional costs that that they are suffering. If significant extra costs are being incurred then it is possible for the employee to be paid more than the fixed rate on presentation of receipts. An often-cited example is an employee whose broadband was sufficient for their leisure usage but required upgrade to allow downloading work matters. That marginal monthly increase in cost (including any set-up charge) could be repaid to the employee without tax. The relevant rules for reimbursed costs to employees which HMRC rigidly apply should be reviewed if sums in excess of £6 per week were expected.
Looking forward, it may well be the case that the employer does not want equipment back from the employee. Can you imagine being a modest employer with, say 50 staff, and have 50 chairs, tables and computer screens being returned to your office! There are specific calculations to determine the sum on which an employee would be taxed if they are gifted assets without charge. I suspect that HMRC will be asked to provide some form of relief against the employee being taxed on modestly valued assets which they were offered whilst working from home that the employer does not want back.
Partners in partnerships who are looking for tax relief on costs that they incur in furtherance to the partnership trade are subject to the usual rules which require the tax deduction to be claimed through the partnership return. Because of this compliance obligation it is common, but not necessary, for the partnership to reimburse the partner and then the partnership recognise the cost within its accounts, and the impact of the cost to be shared amongst the partners.