A journey to homeworking arrangements

With the COVID-19 pandemic behind us and the new normal seeming to navigate its way towards a full return to the workplace or hybrid-working, many employers are finding those homeworking arrangements agreed during the pandemic have created unexpected tax liabilities.

During the pandemic, current employees and prospective candidates had put employers in an awkward position with homeworking requests. Employers readily acquiesced to these arrangements to retain and attract top talent.

Change is on the horizon

There is an increasing number of vacancies that are advertised as on-site. Many employers no longer consider candidates who demand a remote-only role or would only commit to very few days in the workplace.

But what about those unexpected tax liabilities?

It is not uncommon for our employment tax specialists to hear from a concerned client seeking advice on the tax position on the homeworking arrangements agreed during and post pandemic.

Typically, we see situations where employment contracts were amended or drawn up stating the individual’s home would be their normal workplace; and employers agreeing to cover the cost of the employee’s travel and associated expenses from their home to what would have been the ‘usual’ workplace.

What is HMRC’s position?

HMRC’s manuals are clear. It considers where an employee lives and where they work is a matter of personal choice. This has significant impact on whether the employee’s journey to the usual workplace is tax-deductible.

From HMRC’s perspective, for the employee’s home to be regarded as their workplace, there must be an objective requirement of the role for the employee to work from home. Where the objective requirement test is not met, the employee’s journey to the ‘usual’ workplace is ordinary commuting, and costs borne by the employer related to this journey are not tax deductible. In addition, the employee must not have access to facilities provided by the employer to enable them to perform their employment duties.

What does this mean for the employer?

Employers who agreed the employee’s home could be their main workplace could be facing unexpected tax and National Insurance Contribution (NIC) liabilities on the employee’s travel and associated costs. The objective requirement test sets a high bar to hurdle. If the employee could perform their duties equally as well at home or on the employer’s premises, it is unlikely HMRC would accept this test is met.

Where this test is not met, HMRC would seek to recover income tax and NICs on the amount of costs which did not qualify for a tax deduction.

Other homeworking expenses

Employer-funded costs

A tax exemption is available for employers who pay employees up to £6 per week / £26 per month for their additional household costs under homeworking arrangements.

A homeworking arrangement is one where:

• there must be arrangements between the employer and the employee
• the employee must work at home regularly under those arrangements.

This exemption should not be confused with the tax deduction which employees may personally claim from HMRC for working from home – see below.

A tax exemption is also available when an employer provides office equipment and consumables to an employee for use when working at home and where private use is prohibited or insignificant.

Employee tax-deduction claim

Employees may claim a tax deduction from HMRC for additional costs incurred while working at home. However, HMRC manuals sets out strict conditions to be met for a claim to be valid, these are:

• the duties that the employee performs at home are substantive duties of the employment
• those duties cannot be performed without the use of appropriate facilities
• no such appropriate facilities are available to the employee on the employer’s premises (or the nature of the job requires the employee to live so far from the employer’s premises that it is unreasonable to expect them to travel to those premises on a daily basis)
• at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

During the pandemic, HMRC relaxed these strict rules as employees were forced to work from home. However, this relaxation was removed from April 2022 and employees who continue to claim a tax deduction should carefully check whether they meet the strict conditions to make a valid claim.

How can Crowe help?

Our employment tax specialists have helped many employers review their homeworking arrangements.

By working with the various functions in the organisation with responsibilities for recruitment, homeworking arrangements, employee expenses and tax reporting obligations. Our specialists ensure effective controls are in place, underpinned with sound governance. This helps clients manage their budgets going forwards and make efficiencies through streamlining and aligning their internal processes and ensures correct compliance in these matters.

For further information, please contact Glen Huxter, or your usual Crowe contact.