Working remotely – What are the tax implications?

Working remotely has increased since the Covid pandemic, with 12.7 per cent of employees now working full-time from home in 2023.

As an employer, you need to ensure you have a comprehensive and up-to-date remote working policy to address possible tax implications.

These issues include:

• Permanent workplaces and travel expenses
• Provision of home office equipment
• Payment of expenses.

Permanent workplaces and travel expenses

A permanent workplace is a place where your employee attends regularly to work.

When letting an employee work remotely, your decision could result in a change to your employee’s permanent workplace, which will affect your taxes on employee travel expense claims.

HMRC states that home working is a personal choice which means your employee’s place of work might not be classed as a permanent workplace for tax purposes.

If an employee works using a hybrid schedule (where they must be in the office for part of the week), then their office will likely remain as their permanent workplace.

Unless their home is accepted as their workplace, their travel into the office will be classed as a normal commute.

When your employee reimburses their home-to-office commuting expenses, they will find that these expenses are taxable and liable to the current NIC rates, changed by the Autumn Statement 2023.

No matter the situation, it is always important to reassess your position when employees move to hybrid and remote working.

You should:

• Update your expense policy
• Update your employment contracts (where necessary) to reflect any changes.

Provision of home office equipment

You might need to provide equipment, services, and supplies if an employee works from home.

If the employee uses the resources purely for tax purposes or their ‘private use’ is deemed insignificant, then the equipment provision will be exempt from tax and NIC.

However, if these conditions are not met, then you will need to ensure you are tax compliant for homeworking expenses and benefits.

A tax liability may arise if ownership of the equipment passes to the employee, so care needs to be taken when the old equipment is updated or replaced.

Payment of expenses

Where the employee is working from home under a homeworking agreement, and extra household costs are created for carrying out employment duties, you can either:

• Reimburse the employee for actual reasonable additional household expenses
• Pay an HMRC-agreed tax and NIC-free allowance of up to £26 per month or £6 per week.

Many employers decide to contribute to additional household running costs by paying the tax and NIC-free allowance of £26 per month.

This only applies if there is a formal homeworking arrangement in place, where the employee regularly performs some or all employment duties at home.

No relief is due in circumstances where the employee has chosen to work from home from 6 April 2022.

You should continue to assess whether the employee is still performing their duties from home, especially if you pay the tax and NIC-free allowance.

If you would like advice on whether to allow your employees to work remotely, please get in touch today.