Home working expenses – reimbursement of office expenses

On 13 May 2020, the Treasury announced a very welcome new measure which should help those working from home who have acquired new office equipment and received a reimbursement for the costs from their employer. Without this temporary measure, employers and employees could have found themselves exposed to unwelcome tax charges.

It is generally accepted that working solely on a laptop for long periods is poor practice, and can lead to discomfort and back pain. Given that many new homeworkers can expect to be homeworking for some time, it is likely that they will need additional equipment including monitors, keyboards and even desks and chairs in order to make a functional office space at home.

Prior to this announcement, the tax rules where an employee was reimbursed for such purchases by an employer could result in unintended outcomes. While there are usually no tax consequences where the employer has purchased necessary homeworking equipment and provided it to the employee, with the speed at which people had been asked to change working practices, it is likely that many employees simply acquired the necessary equipment themselves and asked their employer to reimburse the costs afterwards. However, employer reimbursements are usually treated differently for tax purposes with the result that, without these changes, even if the new equipment was acquired by the employee for purely work purposes - with little or no private use - under the usual rules any subsequent reimbursement would have been taxable on the employee.

Since this was a bear trap that might have caught many new homeworkers and their employers, the announcement by Financial Secretary to the Treasury (as set below) will be welcome and we look forward to seeing more details next week.

While initially only in place for 2020/21 it is very helpful that HMRC will be allowed to exercise discretion for the period of 16 March 2020 to 5 April 2020 when many people will have started working from home for the first time.

The full announcement from the Financial Secretary to the Treasury is as follows:

“To support employees who are working from home and need to purchase home office equipment as a result of the coronavirus outbreak, a temporary tax exemption and National Insurance disregard will come into effect to ensure that the expense will not attract tax and NICs liabilities where reimbursed by the employer. The expenditure must meet the following two conditions to be eligible for relief:

“That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and

“The provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer (under section 316 of ITEPA).

“The exemption is a temporary measure and will have effect from the day after the regulations come into force until the end of the tax year 2020/21.

“HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any reimbursed payments made from 16 March 2020 (the date the government recommended working from home) to the date these regulations take effect.

“This measure is being announced outside the normal fiscal process in order to ensure that employers and employees are able effectively to manage their working from home arrangements as soon as possible.”

“The Government will lay the statutory instruments to update these charges before the House in due course. A tax information and impact note (TIIN) will be published at www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.”