Between a dream and reality

“Working from home” will take the runner-up position of the most used phrase since the pandemic, followed by “unprecedented”. Even though Covid-19 seems like a faded memory, its effects on the world, particularly payroll, have left a mark.

Working from home has become the preferred style of working for many industries. Prior to the pandemic, flexible working happened on a small scale, and all employees have the legal right to request flexible working, where they meet certain criteria - not just parents and carers. If an employee has worked for the same employer for 26 continuous weeks, then they’ll be able to make a request. The Employment Relations (Flexible Working) Bill is currently making its way through Parliament. However, the government stated it ‘‘recognises that there is no one-size-fits-all approach to work arrangements and has been clear that the legislation should remain a ‘right to request’, not a ‘right to have’’’. The consensus is that the introduction of this Bill could eliminate barriers for applicants, encourage conversations between employers and employees and enable businesses to access a wider pool of talent.

More so than ever, employers recognise the benefits of flexible working for both the business and for staff. One of the obvious benefits is standing out from the crowd, and offering a new alternative way to work, allowing them to remain competitive in the market. There are financial benefits such as savings on the cost of workplaces. Staff can also take advantage of the tax relief arrangements available when working from home. Staff motivation, productivity, retention, and a healthier work-life balance are just a handful of some of the positives.

 In contrast, some businesses felt it wasn’t practical to implement a working from home programme, due to the structure of the organisation or the nature of their company. Working from home also meant change, which is inevitable in the world of payroll but an uneasy experience for many. However, this change was never planned for the majority and some employers didn’t have the capacity or revenue to do so. Even though the new way of working has its benefits, it also comes with tax implications. So, what are they?

From 6 April 2020, employers could directly reimburse homeworking costs to employees at a flat rate of £6 per week. However, for employees wanting to claim more than the flat rate of £6, evidence is required, such as bills, receipts or invoices to demonstrate that the payment is wholly for additional household expenses incurred when working at home. This method can be time effective and lessen administrative burden, avoiding any errors in calculations and having to report on a P11D.

On the other hand, when a taxpayer works from home and expenses aren’t reimbursed by the employer, they may be eligible for tax relief which is available through a claim made to HM Revenue and Customs (HMRC). This is determined by whether working from home is a choice or an obligation. Tax exemption is not available to employees if the employment contract lets them work from home some or all the time, they work from home because of Covid-19 or their employer has an office, but they cannot go there sometimes because it’s full.

Alternatively, tax relief can be claimed if employees work from home because their job requires them to live far away from the office, or the employer doesn’t have an office. Strict guidelines state that you can claim for ‘’business phone calls, or gas and electricity for your work area’’ and ‘’you cannot claim for things that you use for both private and business use, such as rent or broadband access”. Employees working from home will often require home office equipment, such as laptops and desks. The government introduced a temporary tax and National Insurance (NI) exemption in June 2020, where employers could reimburse employee equipment purchases from the period between 16 March 2020 and 5 April 2022.

This was applicable to all employees that had to work from home, where the equipment was provided for the sole purpose of enabling homeworking because of Covid-19. This would be tax exempt if provided directly by the employer if certain conditions were met. The employer must have also provided the home office equipment directly, retained ownership of that equipment and the employee’s private use could not be significant. The ‘new way’ of working is indeed wavering between reality and a dream for many payroll professionals. As the future is shaped progressively by hybrid working, we’re keen to see how this evolves in the years to come for the modern workforce. Will employers embrace the new way of working for employees? Or will they hold back due to the associated tax repercussions?