Exemption for homeworking expenses
The government has announced a new tax exemption for employees who work from home and need to buy equipment to do their job. What’s the full story?
Homeworkers: The government has drafted new rules in a move to help employees who are working from home as a result of the coronavirus pandemic. HMRC has created a temporary exemption so that if an employee buys equipment, e.g. a PC, so they can do their job at home their employer can reimburse them the cost tax and NI free. Employees would be entitled to claim tax relief anyway but NI (employers’ and employees’) may still have applied to the reimbursed amount. The new exemption ensures neither tax nor NI applies.
Conditions: To qualify for the exemption expenditure must meet two conditions:
the equipment is bought solely so that the employee can work from home where they are required to do so as a result of coronavirus; and
the reimbursement would have been exempt from tax under existing rules if the employer had paid for it direct.
Tip 1. The conditions allow for private use. Whilst the reason for buying the equipment must be solely for homeworking, the employee can use it for private purposes as long as it isn’t significant. HMRC interprets “significant” fairly generously.
Tip 2. The exemption only applies for purchases made in 2020/21 but if an employee was reimbursed between 16 March and 5 April 2020 (inclusive) HMRC has the power to treat it as covered by the exemption.
Avoiding a tax charge: When the employee no longer has to work from home the equipment should be returned to the employer otherwise it might result in a taxable benefit in kind. However, if the employer decides to allow the employee continued use of the equipment at home, no benefit in kind will result as long as the purpose for the continued use is work.
Tip. If the employee purchased the equipment at your request you will be entitled to reclaim the VAT they paid. Make sure you obtain the purchase invoice or VAT receipt to support the claim.