Like millions of employees across the world, you may have been required to work from home due to COVID-19.
For some, the transition has been relatively straightforward (bar the occasional surprise appearance made by family members in the background of conference calls), but if you’ve never or rarely worked from home, you may have run into a few challenges.
For instance, you may struggle to find a convenient space in which to work. Even if you do have a spare room or office, the tools and devices you need to work effectively might need purchasing.
Usually, that would have tax implications for the business and employee, but HMRC has just introduced relaxed measures that will help more people work efficiently (and cost-effectively) from home.
If you’re an employer, the changes will be very welcome indeed, and will help you create remote workspaces for your staff which enable them to maximise their productivity while based at home.
What were the rules before?
Before the relaxation of the rules, employers would have to account for tax and National Insurance Contributions (NICs) when reimbursing employees for office equipment purchased to be used at home.
As a result, the employee would often receive a tax bill just for the privilege of having a desk installed or computer provided.
Following the UK-wide coronavirus lockdown, professional bodies such as the ICAEW’s Tax Faculty have urged the government to relax the rules.
And that’s exactly what they’ve done.
So, what’s the deal now?
The changes are coming into effect from 16th March 2020 to 5th April 2021 and offer an exemption on tax and NIC related to equipment purchases for homeworkers.
So, if Company ABC decides to reimburse Sarah for purchasing a desk, chair, and monitor setup that enables her to work effectively from home, neither the business nor employee will be hit with additional tax liabilities.
The new rules apply to most items that are bought specifically for working at home. That includes furniture, IT equipment, and anything else that’s required for the employee to undertake their work while away from the office.
What are the rules?
You’ll be glad to hear that the rules for this are pretty straightforward.
In order for the expenditure to be exempt from additional NIC and tax contributions, it needs to meet the following criteria:
1) The equipment must be obtained for the sole purpose of enabling the employee to work from the home, as a result of the COVID-19 outbreak.
2) The provision of the equipment wouldn’t have been subject to income tax if it had been provided to the employee directly by – or on behalf of – the employer.
Providing the expenditure falls under the conditions above, an exemption will be created for income tax and NIC for employer-reimbursed expenses on relevant home office kit.
It’s temporary, but welcome
For many people, home working is likely to be the norm for the foreseeable future, and there really shouldn’t be a tax implication for buying the right equipment if you desperately need it to do your job.
The changes to NIC and income tax liabilities for these purchases are indeed temporary, but very welcome. Every little helps, after all.
“Reimbursing the cost of office equipment would, under existing rules, be taxable and result in a tax bill for the employee,” said Jeremy Coker, president of the Association of Taxation Technicians. “This is clearly unwelcome, and the announcement of a temporary exemption from income tax and national insurance is fair and welcome.”
We all hope that by the time the exemption is lifted, more people will be back in what was once considered a ‘normal’ office environment. But that’s not a given, and with the COVID-19 situation so dynamic, employers would be well advised to take advantage of this particular tax break while they still can.
If you have any questions or concerns about the new rules, or would like to talk to a friendly team about anything accountancy related, just get in touch with the Chandlers team, today.