More and more employers are using home-working as a way of reducing the need for workspace. Some employees work at home permanently, while others operate under a more flexible arrangement, visiting a workplace as and when necessary. And some employees are based at home but regularly visit customers or suppliers in person.
It’s not just employers who benefit from home-working arrangements. Employees who work from home can save time and money travelling to their workplace. They also have the added convenience of not having to leave the house.
Home-working is not without its drawbacks. Employees need to be able to dedicate space as a work area and they may have additional household expenses such as lighting and heating. They may miss the camaraderie of office life and team building is more difficult.
Tax and homeworkers
Normally, when an employer provides an employee with equipment, supplies or services that they can use privately, they receive a benefit that is taxable.
The amount they have to pay tax on depends on what’s provided:
• for supplies and services, the amount they will have to pay tax on is the cost to the employer of providing them; and
• for equipment the employer lends to an employee, the employee will have to pay tax each year on 20 per cent of the cost or market value of the equipment when it was first lent.
HM Revenue & Customs (HMRC) have recognised that, with increasing numbers of employees working at home, some relaxation of the strict rules and some special tax reliefs are needed so that homeworkers are not unfairly penalised.
When an employer provides an employee with equipment which they can use privately, the employee receives a taxable benefit. The amount which is taxable each year is 20% of the cost or market value of the equipment.
Most employers provide their home-workers with the equipment they need to do their job. This includes the necessities such as a computer telephone, desk, chair and items of stationery. HMRC has said that it will accept that the benefit is not taxable or liable for national insurance contributions (NICs) provided:
• the employee uses the equipment for work and any private use is insignificant; and
• the only reason for providing the equipment was so the employee could work at home.
If the employer pays the cost of providing internet access for an employee’s home computer, the employee won’t have to pay tax or NICs on the benefit if:
• the only reason for providing the internet access was for the employee to work at home and any private use is insignificant;
• there is no separate billing record to identify private use; and
• the cost of providing the internet access is not affected by the private use.
Incidental household costs
Employees who work at home will have additional expenditure on things like heating and lighting. Some employers provide employees with an allowance to cover the additional costs of working at home.
Employers can reimburse their employees for these additional costs without the employee having to pay any tax or NICs provided they pay:
• a flat rate of £4 per week for 2012-2013 onwards (£208 a year) or £18 per month for monthly paid employees (£216 per year), in which case no supporting evidence will be required;
•a scale rate agreed with the employer’s tax office that reimburses the average expenses incurred by their home-workers; or
• the actual costs, provided the employee has evidence to show that the amount reimbursed is no more than their actual additional costs.
To qualify for the exemption, reimbursements must be made under formal ‘homeworking arrangements’. The exemption doesn’t apply if the employee informally takes work home in the evening or at weekends.
This exemption only applies when the employer reimburses the additional expenses because the employee is working at home. It doesn’t mean that the employee can claim tax relief for expenses that aren’t reimbursed. There are different rules covering claims made by employees for unreimbursed expenses and these are very strictly applied by HMRC. An employee can only claim relief for unreimbursed expenses if it is ‘necessary’ for them to work at home. That is very difficult to prove because there aren’t many jobs that can only be done at home and there is usually an element of personal choice in an employee’s decision to work at home.
The employer will generally cover any extra telephone costs the employee has because they’re working at home. They can do this by:
• providing a separate line at the employee’s home for business use;
• providing the employee with a mobile phone; or
• paying the employee’s private phone bills.
The tax position is different in each case.
If a separate business line is installed, there’s no tax to pay provided the employee uses it only for business calls or, if they use it privately, the private use is insignificant or they reimburse the cost to the employer.
There is a special exemption if the employer provides an employee with a mobile phone (including a smartphone). There’s no tax to pay on the cost of providing the phone or paying the bills as long as the employer:
• continues to own the phone;
• contracts directly with the service provider; and
• provides the employee with only one mobile phone.
• If the employer pays the employee’s private phone bills, the employee will have to pay tax on the full amount but they can then claim relief for any business calls.
Before 6th April, 2006 a personal digital assistant (PDA), for example, a Blackberry, was treated as if it was a mobile phone. This meant that if an employee was provided with one, they didn’t have to pay tax and NICs on the benefit. From 6th April, 2006 a PDA was treated by HMRC as a computer. So, unless it was exempt under the general exemption for equipment, the employee had to pay tax and NICs on the benefit. Technology developments evolve rapidly, however, and HMRC now accept that a PDA is now more like a smartphone, provided it is not designed or adapted for a primary purpose other than transmitting or receiving spoken messages.
HMRC Say that examples of apparatus that does not fall within the definition of a mobile phone include satellite navigation devices, devices that are solely PDAs and tablet and laptop computers. It is their view that, in general, devices that use Voice Over Internet Protocol (“VOIP”) systems to make and receive telephone calls will not satisfy the primary purpose test.
If an employee regularly travels to the employer’s place of business – say one or two days a week, every week – the travelling would be ‘ordinary commuting’ and the costs wouldn’t be allowable for tax purposes.
Travelling to see a customer or travelling to the employer’s place of work for occasional team meetings would not be ordinary commuting and would be allowable. The employer can reimburse these travelling expenses without deducting tax or NICs provided they are reimbursed at no more than the approved mileage allowance payment rate (AMAP).
The current AMAP rates are:
Approved mileage rates from 6th April 2011
Cars and Vans 45p per mile for the first 10,000 miles, 25p per mile after that
Motorcycles 24p per mile
Cycles 20p per mile