COVID-19 Additional Costs

COVID-19 Additional Costs

COVID-19 Additional Costs

COVID-19 has been a significant impact on the way people work, with large numbers working from home for the first time. Below we look at some of the most common questions which employees have while temporarily or permanently based at home in response to COVID-19. Employers may pay COVID-19 additional costs where an employee is working from home in response to COVID-19.

For some, this may only be temporary; whilst for others, it may become the new normal. Either because it works for them or because their employers discover that they don’t need large business premises, with everyone in one place, to function efficiently.

Changes, of course, lead to the question of who provides what – you or your employer – and what are the resulting tax implications?

Employer payments towards additional household costs

Section 316A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) provides that no liability to income tax arises where an employer makes a payment to an employee concerning COVID-19 additional costs payments. In respect of other reasonable household expenses which the employee incurs in carrying out duties of the employment at home where a ‘homeworking arrangement’ exists.

The following two tests can show a homeworking arrangement exists:

  • There must be arrangements between the employer and the employee; and
  • The employee must work at home regularly under those arrangements.

There is nothing in s 316A that requires homeworking arrangements to be in place for a particular period. HMRC has confirmed that ‘in the current circumstances, employers requiring their employees to work from home, the above conditions are to be met.

If employees are not already working under homeworking arrangements, HMRC would agree that employees would be covered by the exemption when either the employer agreed they could work from home or from when government advice was announced.’

Consequently, an employer can make a tax-free payment to an employee of £6 per week (£4 per week up to 5 April 2020) (or £26 per month) towards COVID-19 additional costs. Whilst employees are working home working in response to COVID-19. In most cases, mainly where the COVID-19 additional costs are only for heating and lighting within the work area. However, employers can pay a more generous amount where the employee provides the employer with evidence to justify them, and the employer agrees to pay that more generous amount towards an employee’s COVID-19 additional costs.

Employees’ un-reimbursed household costs

Of course, employers are not obliged to contribute towards COVID-19 additional costs an employee incurs when working from home and many will decide not to, especially where the employee is ‘saving’ on commuting costs.

In this case, can an employee make a claim directly with HMRC for tax relief for their unreimbursed expenses for COVID-19 additional costs working from home? The exemption under ITEPA 2003 s 316A for employer payments should not be confused with the deduction for an employee’s homeworking expenses under s 336. The latter provides that a deduction from earnings is only allowed if:

  • the employee is obliged to incur and pay it as a holder of the employment; and
  • the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the job.

These conditions can be tough to meet, and in HMRC’s view they are met only where all the following circumstances apply:

  • the employee is obliged to incur and pay it as a holder of the employment; and
  • the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the job.

These conditions can be tough to meet, and in HMRC’s view they are met only where all the following circumstances apply:

  • The duties that the employee performs at home are substantive duties of the employment. ‘Substantive duties’ are duties that an employee has to carry out and that represent all or part of the central tasks of the job.
  • Regular duties cannot be performed without the use of appropriate facilities.
  • No such appropriate facilities are available to the employee on the employer’s premises (or the nature of the job requires the employee to live so far from the employer’s premises that it is unreasonable to expect him or her to travel to those premises daily).
  • At no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

HMRC are only likely to accept that a homeworking arrangement exists for an S336 claim only where no facilities are available for the employee to work at the employer’s business premises (for example, because the employer has closed the premises in response to COVID-19). There was no choice available to the employee other than to work from home.

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