For many business owners the transition to hybrid and home working for their employees has at times been difficult to manage. Understanding and managing the overall impact on the business, employee’s wellbeing, company culture, working relationships, collaboration and communication has been a key focus for business leaders in the last few years.

However, one of the areas of home and hybrid working that many business owners have overlooked are the tax implications of employees working from home and provision of office equipment.

With an estimated 40% of the UK workforce having the ability to work from home and companies providing equipment to support this, this area will be easy pickings for HMRC now an in the future.

I have no doubt that it’s likely that HMRC will begin to start looking into how equipment is provided, paid for or expensed to employees working from home. You may be thinking ‘So what?’ because the amounts of money involved are minimal. However, the consequences of HMRC investigating this in your business can be far more expensive than you imagine!

Working From Home allowance

HM Revenue & Customs define an allowance for additional expenses arising from working from home.  But this is a very limited amount of only £6 per week to remain tax free.  HM Custos & Excise will allow more to be claimed if it can be demonstrated by evidence.

Home broadband

But we have also seen employers paying the employee’s home broadband as an additional benefit.  However reasonable this seems, it is not tax free and should be grossed up through the payroll for tax and National Insurance in the month paid.

Office equipment reimbursement

To work effectively and safely at home, employees probably require some form of additional office equipment to be supplied. This may have included monitors, keyboards, printers, desks and chairs for example.

During the pandemic many businesses sent out additional equipment or allowed people to purchase equipment and reimburse them for the cost to make a speedy transition to home working.

Thankfully, during the pandemic, a temporary concession was made meaning that any reimbursement by an employer for the cost of office equipment was exempt from income tax and national insurance contributions, however this is concession is no longer in place beyond 5 April 2022.

Today, we continue to see many businesses failing to consider the way in which this equipment is provided, who owns it, and how it was paid for or reimbursed, and this can have expenses consequences.

Complex and out of date tax rules

As the rules currently stand, if equipment is purchased by the employer, no tax consequences arise at the point of purchase and, provided there is no significant private use, no benefit in kind charge will arise. However, working out and proving business vs personal use can be almost impossible.

To add complexity, if the employee keeps the equipment after leaving the company, then a tax charge may arise on the market value of the asset at the time (although second-hand value is often small).

If the employee purchases office equipment themselves and then claims it back from their employer this will be taxable. It is viewed as taxable income which is subject to income tax and national insurance.

Back in December 2022, the (now disbanded) Office for Tax Simplification published their findings in the OTS report on hybrid and distance working. There is no doubt from these findings that the tax implications of working from home are complex and out of date.

How office equipment is treated for tax purposes depending on if an employer purchases it or the employee purchases still don’t make sense and have not been reformed. So, there remains calls for the government to reform these rules.

Is it worth worrying about?

We’ve seen business owners brush off the seriousness of this situation as the amounts of money involved are relatively small in comparison to the turnover of the business.

However, if HMRC do begin to target this area and start looking into expenses and how equipment for home working was purchased or reimbursed over the last few years, the hassle and cost of unravelling this, reporting back to HMRC will be disproportionately high compared to the original cost of the equipment.

What should you do?

My advice to clients is to undertake a review of the types of expenses incurred or reimbursed – often working practices might have slipped over time and you might be surprised to see what is being claimed and signed off in your business!

There are various forms of treatment which might apply, including taxation through the payroll when paid, to being taxed on a P11D and either subjected to class 1 National Insurance when paid or Class 1A on the P11d.  Some benefits might even be exempt!  But don’t leave it for HM Revenue & Customs to challenge as, whilst the tax might be minor, the aggravation of a tax enquiry will be very unwelcome!

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