QUESTION: Due to Covid I've been working from home since March. My employer has advised that for the foreseeable future, this arrangement will continue and has offered to provide an office structure to enable me to work from home which will be installed in my garden. I am keen to explore this further. Are there any tax implications that I need to be aware of?
ANSWER: Employers and employees have shown resilience since March in order to keep businesses operating in a caring and safe environment for staff, clients, customers and suppliers. Home working arrangements for many, have become a standard practice, providing many benefits to both employee and employer, particularly where there could have been long commute journeys to and from the workplace.
To facilitate, new home working arrangements, there has been a surge in the purchase of office equipment, supplies, house renovations to create an office space and growth in the modular build sector focusing on office structures, for example, office pods, work pods and garden rooms. These spaces provide an area outside the home separating home life from work life to create and maintain a healthy work life balance. With further Covid-19 restrictions announced last Wednesday, the realities that normal working office life may not resume for some time.
The provision of a modular office structure, for example, a work pod, by an employer, could be taxed as a benefit in kind on the employee. A benefit in kind, represent a benefit or perk, that an employee receives from their employer, which isn’t received in monetary terms, i.e. monthly salary. Other examples of more common benefits in kind would be a company car, private medical and tax free loans.
The taxable amount of a benefit in kind is based on the annual cost of that benefit to the employee and there are various rules on how this is calculated depending on the type of benefit being provided.
The annual cost of the work pod, would be calculated, based on the higher of (a) the annual value of the use of the asset and (b) the annual cost of payments made by the employer providing the asset, for example, hire charges, rent of the asset. The annual value is generally calculated based on 20 per cent of the market value of the asset at the time that it was first provided as an employment related benefit.
To put this into context, if the employer acquires the asset, for example, at a cost of £3,000, the annual value of the use of the asset would be £600, therefore, the annual cost and benefit in kind value would also be £600. As an employee, you would pay income tax on this benefit in kind and assuming you are a higher rate tax payer, the additional tax cost would be £240. There would be no associated employee NIC liability.
However, it should be noted that a benefit in kind would only arise where there was private use of the asset. If it was purely used for business purposes there would be no additional tax charge for the employee. This would be based purely on the facts of the case and if there was any agreement in place between the employer and the employee in respect to the use of the work pod.
It would be important that you also note the impact that the work pod could have on principal private residence relief (PPR) on any future disposal of your home/main residence. This has been very topical as a result of Covid-19. In order to claim PPR, the property must have been occupied as a residence. If any part of your home (including the garden) was used exclusively for the purposes of a trade, business, profession or vocation, then PPR could be restricted and you may have a capital gain on any future disposal. This can be an area that is sometimes overlooked.
As you are working from home your employer may also provide you with equipment, for example, computer, office furniture and internet access. Generally, no benefit in kind would arise if the equipment is used solely for business purposes and any private use is insignificant. In addition to this, the employer may also pay household expenses, for example, electricity, gas, heating.
In these circumstances, and, providing there is a homeworking arrangement, the employer could pay £6 per week to the employee tax free. As a result of Covid-19, whereby staff have to self-isolate or businesses close and employees are required to work from home. HMRC have stipulated that these period would be categorised as homeworking arrangements.
In summary, it would be important to review the work from home arrangements with your employer to ensure that you both have a firm understanding on the tax position for both parties, prior to entering into any agreement.
Siobhan McCreesh (s.mccreesh@pkffpm.com) is associate tax director at PKF-FPM Accountants (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.
