QUESTION: I have a very long commute to work every day and my duties often involve me working late into the evenings so I regularly take a lot of work home with me. I’ve set aside an office at home and my employer also frequently facilitates ‘homeworking arrangements’. Are any of the reimbursed expenses I claim from my employer taxable and can I claim additional tax relief on any of my household bills?
ANSWER: Generally, any personal costs paid on behalf of, or reimbursed to, an employee by their employer will be taxable.
The employee will then have to claim the personal tax relief themselves and prove that they incurred those costs ‘wholly, exclusively and necessarily’ in carrying out their job. The word ‘necessarily’ creates a much tighter test than that for the self-employed.
In addition, the way in which the services are provided can sometimes make a substantial difference to that tax cost. For example, if the employer provides something for the employee, the rules are often much more generous than if the employee bought it themselves and attempted to claim the tax relief. So, a bit of forward planning can often simplify the tax position.
The rules for employees in relation to ‘use of home as office’ however contains a specific exemption from this tax charge. The rules allow payments made by employers to employees for additional household expenses to be tax free, where the employee incurs those costs in carrying out the duties of the employment under homeworking arrangements.
‘Homeworking arrangements’ means arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home. The arrangements do not need to be in writing but it is advisable to do this, as the exemption does not apply where an employee works at home informally.
Where these rules are met, the additional costs of heating and lighting the work area can be met. There might also be increased charges for internet access, home contents insurance or business telephone calls and where working at home leads to a liability for business rates HMRC accept that the additional cost incurred can also be included.
However, unlike the self-employed, HMRC do not accept that a proportion of household fixed costs such as mortgage interest or rent are allowable. HMRC accept that a £4 per week payment from the employer is acceptable without too much formality if the above tests are met. However, to justify a higher payment, is it necessary to substantiate the payment.
Also, it should be noted that the above rules only allow tax free payments to be made in specific circumstances. If payments are made outside of these rules or, in fact, no payments are made at all, the employee can claim personal tax relief themselves if they can prove that they incurred the costs or received the payments ‘wholly, exclusively and necessarily’ for the purposes of their job.
In reality this is extremely difficult to do – some would say impossible – as HMRC require the following tests to be met:
• the employee performs the substantive duties of their job from home (i.e. the central duties of the job)
• those duties cannot be performed without the use of appropriate facilities
• no such facilities are available to the employee on the employer’s premises or are too far away
• and 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.
Capital allowances will be available to the company for the costs of providing equipment to employees who work at home. Provided that the private use of those assets by the employee is insignificant, then there will be no taxable benefit on the employee. Again, this could apply to things such as a laptop, desk or chair, provided that the employer has a written policy making it clear that the provision of the equipment is for work-related purposes.
The key is to be clear about the rules and be sensible about how much to claim. If you want to maximise the tax position, it is also essential to keep good records. If not, HMRC may seek to rectify the tax position several years down the line and this can lead to unexpected bills, including several years’ worth of tax, interest and penalties.
:: Janette Burns (j.burns@pkffpm.com) is an associate tax director at PKF-FPM Accountants Limited (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies
