Employment tax checklist for hybrid working

The coronavirus pandemic has rapidly accelerated a move towards hybrid working. This is a working style which allows employees to split their time between attending a traditional workplace such as an office and working remotely, for example from home. In some cases, employers have additionally decided that certain groups of employees can become full time homeworkers without the need to visit an office. 

This fundamental and rapid change in the way that many of us work means that care is needed to ensure that as an employer you remain compliant with employment tax obligations. This is particularly important as some temporary covid related tax reliefs are currently due to end on 5 April 2022. 

As a starting point employers should consider the following points as part of a checklist: 

Have you considered the impact of hybrid working on an employee’s permanent workplace? 

Broadly for tax purposes a permanent workplace is a place that the employee attends regularly to perform the duties of the employment.  No tax relief is due on travel costs for journeys from home to and from the permanent workplace as this is regarded as ordinary commuting. The only exception to this is in the rare case where home is also accepted as being a permanent workplace.

It is important to consider whether a move to hybrid or homeworking has had an impact on the permanent workplace of any of your employees. If there has been a change then this needs to be communicated and the impact on eligibility for claiming expenses should be considered. 

Have you considered the tax consequences of providing home office equipment? 

Employers generally make provision for the supply of office equipment for employees working from home under hybrid or home working arrangements. From a tax perspective where an employer provides an employee with home office equipment for the sole purpose of enabling the employee to perform their employment duties, and any private use of that equipment is insignificant, the provision of the equipment should be exempt from tax and NIC. This exemption is conditional on the employer retaining ownership of the equipment.   

Where an employer instead reimburses employees for their personal expenditure on home office equipment this is currently subject to a temporary tax exemption which will be withdrawn after 5 April 2022. From 6 April 2022 the reimbursement of such costs may be taxable. Similarly, if instead of providing office equipment you pay a round sum allowance to employees to use to purchase equipment this has always been subject to PAYE/NIC in full.  

Do you help meet the cost of employee household expenses? 

As part of a move to hybrid/homeworking arrangements employers need to decide whether they will contribute to employee household running expenses. Employers can contribute to additional household running costs by making payment of a tax and NIC free allowance of £6 per week/£26 per month. This is ordinarily subject to there being a formal homeworking arrangement in place under which the employee regularly performs some or all of the duties of employment at home. 

Many employers have decided that they will not reimburse actual household expenses or pay the flat rate allowance. In response to this and as a temporary response to Covid HMRC has temporarily allowed employees to make direct claims for tax relief on the £6 per week/£26 per month where they have had to work from home. The ability for employees to claim this tax relief where their employer does not pay the allowance is currently set to be withdrawn after 5 April 2022.  

Have you identified any employees working from home overseas? 

Whilst still comparatively rare, some employers are finding out that their hybrid/home workers are working from home overseas. It is important for employers to identify such arrangements and ensure that an assessment is undertaken of the consequences before formal agreement is given. Such arrangements can cause host country withholding tax, social security and employment law issues and in some cases could lead to a permanent establishment of the organisation being created overseas. 

Have you reviewed and updated your expense policy and processes? 

For many employers a move to hybrid/homeworking arrangements will result in claims for expenses, including the points referred to above. It is important that you therefore review your expense policy and update this as necessary to ensure a consistent and compliant approach to expense claims. 
As employers move towards more flexible working arrangements it is important that each of these points is given due attention to avoid unexpected tax liabilities.