Tax changes for a hybrid working model

As we approach 2021, the world around us, globally and locally, continues to change in the face of COVID-19. 

By better understanding how our working lives have changed and will change going forward, there is an opportunity to align the regulatory and tax environment with the interests of government, businesses, business owners, and employees. 

Even with all of the positive news on various vaccines for COVID-19, there appears to be a consistent sentiment that office working life has likely changed for the foreseeable future. 

The future of work: a hybrid model

COVID-19 has had an impact on everyone in Ireland. 2020 has seen a dramatic movement of people out of offices and into homes, with a related shift of individuals from cities and large urban centres back to homes around the country in small villages and larger towns. 

During restrictions, employees across a wide cross-section of industries from professional services to technology have been asked to work from home and stay out of previously busy offices in city and town centres.

Employees that solely work from home may benefit from no commute to and from work, but in some instances can suffer from the lack of social interaction with colleagues and clients/customers. 

The solution would appear to be a hybrid remote working arrangement, where employees could continue to be based away from the primary workplace for the majority of their time, but have the ability to avail of a remote workspace in a hub in their locality and close to their home where possible. 

From here they can work and be productive, while being able to physically separate their personal home life from work life. It could also shift larger businesses away from the idea of having one central location and towards a local or regionalised approach where they have local hubs for employees in that region. 

This has been a core element to IDA Ireland’s strategy in attracting international businesses to Ireland. They actively encourage companies through financial incentives to consider regional locations outside of the main cities. 

Why not expand this encouragement to domestic businesses as well, and offer tax incentives for businesses that avail of this option? 

What could government do?

So how do we make our tax system work for us all as a collective group of individuals, businesses, and local and national government bodies?

There are some existing basic tax incentives around working from home in the form of a tax allowance/deduction, but I think government can do much more to reflect the new way of working. 

We need the government to recognise the seismic impact of COVID-19 on businesses and the individuals who own, manage and work in those businesses, and the likely long-term effect of that impact. We need to facilitate and incentivise businesses to establish a local or regional presence whether as a primary or secondary location. 

• A defined concept of “secondary location” could be developed for tax purposes that would recognise businesses that have a primary workplace and additional secondary location(s). The government could provide a tax incentive in the form of a refundable tax credit, similar to that for qualifying R&D activities, for businesses that incur the cost of renting and maintaining a secondary location outside of designated cities or large towns. The secondary location in most instances being a flexible space in a shared workspace or hub, similar to those hubs already in operation in many locations throughout the country.
• A defined concept of “remote worker” could be developed with specified criteria. For example, an employee that is required to attend the primary workplace for no more than 40% of their standard work hours, with the remaining 60% spent either working from home or at the employer’s secondary location. Such workers could be offered a standard remote worker tax credit, to replace the benefit of the Cycle to Work and TaxSaver schemes that employees can currently avail of. In cases where their employer is not in a position to cover the cost of a remote workplace as set out above, that individual employee should be given tax relief on any costs they personally incur in using a flexible remote-working hub.
• An example of a direct initiative could be for employers to be offered a temporary PRSI exemption on salary and benefits provided to the newly defined “remote worker” for a period of two years from 1 January 2021.

What are the benefits?

More vibrant localities and regions around Ireland – local businesses will benefit from more activity and an increased spend locally. 

The environment also benefits from fewer cars on the road and fewer commuters sitting in traffic. 

There will be gains for an individual’s health and wellbeing for the same reason, and a greater opportunity to walk or cycle to work. The collective health of the country gains from less cross-county travel and mixing together in busy offices in overcrowded city centres.

Families gain from less travel time, meaning more time spent together and more time for parents to bring kids to activities and sports, or even take part!  

Plus, it would result in a more flexible and resilient workforce. With the lessons learned from the experience of COVID-19, we would have a flexible and resilient workforce ready to adapt to any possible future pandemic. 

Where to go from here?

With all of the prospective benefits outlined above, there is a clear incentive for the government to try to facilitate this new way of working as much as possible.  Using the tax system provides a well-established way of encouraging certain behaviour by businesses and their employees.  Any potential cost to the exchequer needs to be considered in the context of the question – what is the cost of doing nothing?