The Government has announced a temporary tax and National Insurance Contribution (NIC) exemption that ensures that home office equipment purchased by employees, where reimbursed by the employer, does not attract tax or NICs.
Jesse Norman, financial secretary to the Treasury, announced in a statement to the House of Commons that the temporary exemption will affect expenses from 16 March 2020 (the day the Government asked that employees work from home where they could) until the end of the 2020/21 tax year.
To be eligible for relief the equipment must:
- have been bought for the sole purpose of enabling the employee to work from home as a result of the Coronavirus outbreak
- be exempt from income tax if it had been provided directly to the employee by or on behalf of the employer.
The move should ensure employees are not financially penalised as a result of changes in working arrangements during the pandemic.
Existing Tax relief for employees working from home
Employers can reimburse costs tax-free where there is a ‘homeworking arrangement’ between an employer and an employee and the employee must work at home under the terms of these arrangements.
A notable exception here is costs that are unaffected by whether or not an employee is working from home, like mortgage repayments or rental payments.
Similarly, the cost of existing broadband connections cannot be reimbursed tax-free, although new connections can be, where the employee does not already have a broadband connection.
From 6 April 2020, an employer can pay employees up to £6 a week (£26 a month) to cover additional costs if they have to work from home. For previous tax years, the rate is £4 a week (£18 a month).
In circumstances where the employer does not meet the additional costs of an employee working from home – such as heating, water and electricity – but requires the employee to work from home, it may be possible for the employee to claim tax relief in respect of these costs.
Expenses for both personal and business use are not eligible for tax relief.
Employees can use HMRC’s online tool to determine whether particular expenses would be eligible for tax relief. The tool can be viewed here.
If you require assistance with reclaiming the cost of staff working from home, speak to our tax team to see what options are available.