Hybrid Working – Tax Considerations for Employers & Employees
As more employers and employees choose to adopt a hybrid working model for employees, attempting to balance the positives of working from home and encouraging the workforce to remember those long-forgotten qualities of office life, what tax issues do employers & employees need to be aware of?
1.Equipment
Employers have invested heavily in new equipment (laptops, monitors, printers, desks etc.) to enable their employees to work from home efficiently and effectively.
Employers are under no duty to fit out home offices for their employees.
However, employers must remember their responsibility to ensure employees have a safe and healthy working environment.
There is no tax charge on an amount reimbursed to an employee for equipment purchased for the sole purpose of working from home.
To qualify for this exemption, the equipment must be used for business purposes and not for significant private use. An employer might wish to state as much in its written usage policies to prevent abuse and the risk of the tax being clawed back.
Once this is established, employees can make qualifying claims for equipment which the employer can reimburse tax-free.
2. Expenses
Working from home has led to an inevitable increase in employees’ utility bills as they power up their computers, mobiles and other devices and heat their homes which might have previously stood cold throughout the day.
Before the pandemic, an employee was only eligible for a tax-exempt payment of £4 a week from her/his employer if s/he worked under a homeworking arrangement. The scope of eligible employees and the size of the tax-free payment have both increased.
The former now includes those forced to work from home during the pandemic and the latter from £4 to £6 a week.
Employers are not expected to retain receipts and records for their ’employees’ utility bills unless the employer’s contribution exceeds the £6 a week.
Employers should also make it clear that these payments relate to utility payments and not mortgage, council tax, interest or rent payments, as these are not included in the exemption.
3.Commuter Costs
When employees do return to the office, can they receive travel expense tax relief?
Generally, no tax relief is available for employees travelling from their homes to their permanent workplaces as this is deemed ‘ordinary commuting.
Some employees might want to argue that the office is no longer their permanent workplace or that their new co-working space, that they visit once a week, is a temporary workplace.
The difficulty here is that most of the hybrid working models place no obligation on the employee to be in the office. If there is no obligation, then employees are travelling by choice and it becomes harder to justify a tax exemption for such costs.
Employers, therefore, should make it clear to returning employees that ordinary commuting costs still do not benefit from any new tax relief.
4.Working Abroad
Working from home or working from the south of France? Apart from the weather, what’s the difference?
Allowing employees the flexibility of working from other countries can make an appealing working environment and help attract global talent. However, careful consideration needs to be given to the challenges posed not only by tax legislation but also social security, immigration and employment laws.
In terms of tax considerations, employers will need to continue accounting for tax in the normal way and in some jurisdictions, where there is a dual payroll obligation, the employee’s income could be subject to double taxation.
It is recommended that employers explain this risk to any employee thinking of working abroad and advise that her/him obtain tax advice in that jurisdiction.
By virtue of having employees working in a second jurisdiction, employers can also face the risk of setting up a permanent establishment akin to a branch or an office. The risk of doing so without local legal and tax advice is, without knowing, an employer could need to comply with reporting requirements and account profits made in that location which are likely to be subject to local tax.
If an employer is unaware of such reporting or accounting obligations, the employer could be in for a surprise when local authorities come calling. Both employers and employees should take local advice before sending, allowing or requesting movement internationally.
Conclusion
Employers should assess every employee’s working situation on a case-by-case basis. The above exemptions can be beneficial for both employers and employees when understood and implemented transparently.
Employers are recommended to introduce policies to help employees understand what does and does not qualify for eligible tax relief claims and the associated risks for the employer if they are abused.
On a larger scale, the risks of double taxation, for both the employee and the employer, should be assessed before decisions on working abroad are made and local tax and legal advice should be sought.
If you require any further guidance or specific advice, please contact henry@gordonsols.co.uk.
About the Author
Henry Wright
Associate
Tel: 02074219421
Email: henry@gordonsols.co.uk