If your employees are working from home due to the coronavirus lockdown, there are important tax compliance issues to consider before reimbursing expenses.
What are the allowable expenses?
1. Supply of one mobile phone per employee
The supply of one mobile phone per employee is non-taxable. There is no need for any restriction of private use for the provision to be non-taxable and this ensures your employees can stay in touch.
2. Provision of new internet connection
If your employee already pays for broadband, then no additional expenses can be claimed.
However, if due to the current situation a broadband internet connection is needed to work from home and one was not already available, then the broadband fee can be reimbursed to the employee and is non-taxable.
In order to be treated as non-taxable though, the broadband is provided for business and any private use must be limited.
3. Providing or allowing home use of laptops, tablets, computers and office supplies during lockdown
If these are mainly used for business purposes and there is no significant private use, the provision of IT equipment and office supplies (for instance paper for printing) is non-taxable.
4. Payments for additional expenses such as electricity, gas…
Payment or reimbursement to your employees of up to £6 a week. This payment was £4 a week prior to 6 April 2020) and it is non-taxable. You do not need to prove this expense, no invoice will be required.
This sum is a flat rate allowance estimated to cover the additional household expenses incurred when your employee is working from home.
If your employee thinks the costs exceed this amount, then they will need to check with you as to whether you are happy to make payments of the higher amount and keep receipts to support the additional costs.
If you do not reimburse them, they may be able to claim tax relief through their online Personal Tax Account instead.
5. Providing loans of up to £10,000 interest free to employees
Interest free loans (advances) of up to £10,000 in a tax year are non-taxable. You may wish to provide a loan to assist employees in case of hardship.
Always ensure there is clear agreement in writing between you and the employee as to the terms of the loan, particularly in relation to repayment.
6. Paying for temporary accommodation
If your employee needs to self-isolate but cannot do so in their own home, they may need to move out for a period. However, please be aware that if you reimburse hotel expenses and subsistence costs, these are taxable in the hands of the employee.
7. Paying mileage expenses for own vehicles for business trips
The position on this is generally a well-trodden path but it is worth reminding that if for some reason your employees are still required to make journeys for business purposes, you can pay approved mileage allowance payments of 45p per mile up to 10,000 miles (25p per mile thereafter) free of tax and national insurance contributions (NICs).
This amount has not changed for years.
As with the additional costs of electricity, etc, if you do not pay mileage allowance, your employee can claim tax relief through their HMRC Personal Tax Account.
8. Early changes to salary sacrifice arrangements
Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that Covid-19 counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.
9. Making small gestures within the trivial benefits exemption
You do not have to pay tax on a benefit for an employee if all the following apply:
• cost £50 or less to provide;
• not cash or a cash voucher;
• not a reward for their work or performance; and
• not in the terms of their contract.
So, if you feel like arranging for flowers or an Easter egg to be delivered (within the relevant safety guidelines, of course) to someone who is self-isolating, this can be a tax-free gift.
10. Settling tax and NIC for employees for covid-19 related items using a PAYE Settlement Agreement (PSA)
Any expenses or benefits which are related to coronavirus/covid-19 can be reported on your PAYE Settlement Agreement.
This means the employer can settle tax and NICs on any expenses or benefits, even though the responsibility would usually be on the employee, or on both the employer and their employee.
This applies to coronavirus related items only, for example, a new desk purchased by an employee for homeworking can go on the PAYE Settlement Agreement, but a new sofa cannot.
Furloughed workers are not allowed to work for their employer so they do not have to be considered during any period when they are on covid-19 related temporary leave.