Many organisations are now moving to agile/hybrid working. However, before expenses and benefit claims are reimbursed to employees, employers should consider the relevant employment tax and reporting obligations. This article sets out guidance on the tax considerations when employers are reimbursing expenses.
If the employee already has an existing broadband or upgrades their package, any expenses reimbursed towards this would be taxable, which would be reportable on a P11D or a PAYE Settlement Agreement (the PSA). For broadband to be tax exempt it has to be the first time it has been installed. HM Revenue & Customs’ (HMRC’s) approach here isn’t very useful, so often employers will contribute via the payroll, which is fully taxable and subject to National Insurance contributions (NICs), on any payments made.
Under a special exemption, reimbursement to the employee for the costs of the purchase of office equipment that is wholly, exclusively and necessarily in the performance of the employee’s duties of employment would be non-taxable. This does not need to be reported to HMRC. There is no tax and NIC applied to purchases made by employees for home-office equipment until 5 April 2022 due to the Coronavirus pandemic.
If, upon leaving employment, the employee returns the equipment to the employer, there is no tax charge. If the equipment is not returned and ownership is transferred, the equipment becomes a taxable benefit in kind (BIK).
Working from home relief
Tax and NIC relief of £6 per week or £26 per month can be claimed for working from home. The employee can make the claim themselves or employers can make the payments directly to the employee, tax and NIC free.
If expenses are claimed for travel to a permanent place of work, it would be a taxable BIK, and if the employee has more than one permanent place of work, the travel expenses would also be treated as a taxable BIK for that second workplace. No taxable BIK arises if the travel is to a temporary place of work. To be a permanent place of work, HMRC guidance is that the employee travels there for more than 40% of their working time for more than two years. The two years is not a period of grace as, if you know from the outset you will exceed the 40%, then the expenses are taxable from day one. If the intention is not known at the outset, then this should be tracked and monitored prior to the two-year point.
If an employee has a home working contract and travels to the office, for example, for a meeting, the travel cost would be tax exempt providing they do not visit the office on a regular basis, breaching the 40% working time guidelines.
Where employees are claiming expenses for working late, there are four conditions that need to be satisfied for the late working expense to be exempt from tax:
- The employee is required to work later than usual and until at least 9pm.
- This occurs irregularly.
- At the time of the journey home, public transport is not available, or it would not be reasonable to expect the employee to use public transport.
- Late night taxis are used by the employee on 60 or fewer occasions in a year.
A specific exemption is available for tangible gifts provided to employees for long service. For this exemption to apply, the employee must have worked for the employer for at least 20 years, the award must be worth less than £50 for every year of service and no other long service award has been provided in the last 10 years.
Any general gifts that are provided to employees can be treated as trivial benefits which are non-taxable/NIC exempt, provided the following conditions are met:
- The cost is £50 (including VAT) or less.
- The gift is not cash.
- The gift is not a reward for work or performance.
- The gift is not a contractual right/regular occurrence.
If the above conditions are not met, the gift will be liable to tax and NIC.
Employers are not required to report the cost of an annual event provided the following conditions for the exemption are satisfied:
- Cost per head is £150 (including VAT) or less.
- The event is open to all permanent employees (at that site/office).
- The event is annual, eg at Christmas.
This exemption was expanded to cover virtual events over the Covid-19 period.