A lot of work has moved from the comfort of the office to our private homes. Whilst working from home due to these unexpected circumstances can bring many challenges, employers and employees should also be aware of the tax benefits at their disposal. Certain expenses are non-taxable if your employees are working from home.
If you have been working from home even before this crisis, you have the opportunity to claim certain expenses on your tax return. There have been no changes to this system. However, the coronavirus has forced many employees to work from home and they could fall under the scope of these tax reliefs, which is the topic of this guide.
Which employees are covered?
The Government has published its guidance for employers whose employees are working from home due to coronavirus. It outlines the expenses that are taxable or tax-free in situations where employees are working from home due to COVID-19 because:
- The workplace is closed for work
- The person is following the advice to self-isolate
It is crucial to note that if you’re participating in the Coronavirus Job Retention Scheme to help with salary payments, you are not allowed to make the following tax claims for work from home.
Taxable and non-taxable expenses
As an employer, you have the duty to support your employees when they have to work from home. These circumstances might lead to new expenses and some of these might be non-taxable. Here is a quick look at the taxable and non-taxable items:
Mobile phones and SIM cards
You can provide a mobile phone and a SIM card to your employee as a non-taxable expense. There will be no limit on private use but you can only provide one phone and SIM card per employee.
Employees who already had broadband won’t be allowed for any tax claims. But if you are providing a broadband connection to your employee(s) to work from home, then you can reimburse the fee and it will be non-taxable. However, private use of the broadband should be limited.
Laptops, tablets, computers, office equipment and supplies
If the following items are bought for business purposes and not in significant private use, the expenses are non-taxable.
However, if your employee(s) buys office equipment then you need to report it on your PAYE Settlement Agreements. The equipment will be taxed as normal.
A private car used for business
Employers can pay mileage allowance that covers 45p per mile up to 10,000 miles (25p per mile thereafter). This allowance is non-taxable. If you do not pay it, your employee is entitled to claim tax relief through their Personal Tax Account.
Electricity, heating or broadband
You can reimburse your employees for the additional household expenses that might incur when the employee is working from home, such as electricity, heating or broadband. The limit used to be up to £4 a week but it went up from 6 April 2020 to £6 a week and it is a non-taxable expense. The key thing to remember is that your employee will need to agree with you for these payments and keep receipts.
Some employees might have to self-isolate but they might not be able to do it in their own home. As an employer, you can reimburse them for hotel expenses or other temporary accommodation costs. These payments will be taxable.
You might provide your employees with a salary advance or loan during these troubled times. This will count towards an employment-related loan and if the value is less than £10,000 in a tax year, the payments are non-taxable.
Understanding significant private use
As the above shows, certain items can be exempt for work-related benefits as long as there is no significant private use. This is not based on the time spent on various uses but rather your employee’s duties and their need for the equipment or service in terms of performing their job.
Furthermore, you need to:
- State your policy about private use to your employees, setting out the circumstances under which private use is allowed.
- Be aware that your decision to not recover the cost of private use is not a reward but a commercial decision.
How to report to HMRC
All expenses or benefits relating to the coronavirus and working from home should be reported on your PAYE Settlement Agreement. Non-taxable benefits or expenses don’t need to be reported to HMRC.
What about employees who aren’t working from home?
Businesses are doing everything they can to adapt to the new situation and many companies have been able to keep going. However, working from home is not available to all businesses or employees. If you are struggling to make payments to your employees when they aren’t able to work, you could get help with the recently launched employee furlough scheme. You can find more information about it from our previous blog post.
Get more help with your small business taxes
These are testing times for many SMEs and it’s important to stay on top of all the little things that can help your business financially. Taking advantage of the tax breaks and loans available is a great place to start. If you need help navigating the new schemes and existing measures, please don’t hesitate to reach out.
At Devonshire Green, we have worked with small businesses for years. We understand that business owners don’t always have the time to go over the latest legal developments and that’s why our experts want to break down the issues for you. We work hard to ensure your business is better equipped to serve its clients – especially during difficult times like these. Contact us today if you want to learn more about the help available for your small business!