Jennie Brown, Tax Partner at Streets Chartered Accountants, discusses the tax implications of hybrid working arrangements.
Hybrid working is essentially flexible working, and something that in recent years many employers have had to consider in order to provide competitive remuneration packages to potential employees.
Quite literally overnight, the pandemic saw this previously perceived perk as a necessity for those businesses who could continue to operate in this way.
Now, many businesses are considering adopting formal hybrid working arrangements as they seek to allow their employees to attend the workplace for part of their working time, and continue to work at home or elsewhere remotely, for the remainder of their working time.
Of course, there are a whole host of areas that need to be considered collectively by employers when considering hybrid working arrangements. Whilst reduced office space and even parking space may help to reduce a business’s outgoings, there are other areas such as Legal and HR, even Payroll that need consideration.
Tax is also a key consideration and specifically, the impact on an employee’s permanent workplace and changes to expenses and benefits should be understood, together with associated changes required to tax reporting and costs.
An individual’s contract will refer to their permanent workplace. The rules are that individuals cannot receive tax free reimbursement of home to permanent workplace travel. Changes to the place of work, the employees’ home, will require employment contracts to be updated and importantly such changes must be made on the basis that it can be demonstrated the individual is required to perform substantive duties at home as an objective requirement of the job. If the individual is still required to go into the office say two days a week, this may mean their current office will remain the permanent workplace due to the rules around is attendance frequent and does it follow a pattern.
Provision of Equipment
Where employers provide equipment to employees who are working from home, if the ownership of the equipment remains with the company and the employee’s private use is not significant, then there is a specific tax exemption that will apply. However, if an employer asks their employees to buy equipment which the employer then reimburses, ordinarily this would result in a tax charge. However, the Government introduced a temporary relaxation on this point, but only up until 5 April 2022. Importantly, this relaxation is conditional on the offer of reimbursement being made to all employees generally on similar terms.
Contribution to Employees Household Running Expenses
Employers can make tax free payments of £26 a month without receipts, to cover reasonable household expenses, but this is conditional on the employee carrying out duties at home, under a formal home working arrangement. This will typically require a formal home working arrangement document which requires the employee to work from home regularly.
Ordinarily this exemption for home running expenses would only apply to payments made by the employer however, again the Government introduced a temporary relaxation to allow employees to make a personal claim for tax relief, but only if they have to work from home because of COVID and it doesn’t apply if they work from home out of personal choice. This temporary concession for the employee to make the claim is only available until 5 April 2022.
It is important to note that any changes as a result of changes to working practices, are reflected in company expense policies.
A change in the type of benefits that attract employees
A further consideration is the impact of hybrid working on the demand for employee benefits. Company cars, workplace car parking and season tickets may prove less popular whereas other benefits may become more attractive, and this is something employers will need to consider.
Internationally mobile employees
The pandemic has not only highlighted how many businesses are able to operate with employee’s working from home, but in-fact that employees could be working almost anywhere and perform their role. Businesses may therefore have to deal with tax issues around greater global mobility across its employees, whereby an employee works remotely in a country other than that of their employment contract. There are many aspects to consider here, whether the employer already operates on a global scale or not, and there are considerations from both the employees individual tax position and that of the employer which need to be fully considered.
No doubt many employers and their HR teams will be looking at or considering the need and benefit to changes in working arrangements over the coming months. It is, however, well worth taking advice on the potential tax implications from a tax adviser.