With the roll out of the Covid-19 vaccination program and the easing of lockdown measures, the return to the workplace has become a potential reality that employers and employees alike, are beginning to contemplate.
Since March 2020, where possible, workers have been required to work remotely to help prevent the spread of Covid-19. This enforced extended period has served to challenge the definition of the ‘normal’ working place, as employers consider reducing office space to reduce cost, and employees consider the benefits associated with agile or flexible working that they have been enjoying to date.
The answer to the debate on what should be considered as the place of work moving forward, will be a unique one based on the type of industry, the employer’s culture and forward strategy, and the employee’s expectations, preferences, and personal commitments.
However, whether employees continue to work completely from home, partially return to the workplace, or return to the workplace wholesale, consideration will need to be given to the contractual working arrangements, as well as a full assessment of any expenses reimbursed or benefits provided, to determine if there are any associated reporting requirements.
The complexity in these areas has sparked much debate, generating a myriad of questions posed within the industry. The following questions and answers have been shared to help organisations gain an insight into some of the areas they need to consider, as they work with their employees to agree what the new ‘normal’ will be in terms of the regular workplace.
My employees are telling me that I should be paying them £6 per week tax free towards household expenses if they work from home, is that right?
HMRC have for some time now, made provision for employees working from home, to enjoy tax relief on a fixed value of £6 per week or £26 per month in respect of expenses incurred by working from home (heating, light, water etc.). As an employer this means that you have the option to make tax-free payments to your homeworkers up to these limits, however, you are not obliged to do so, in which case the employee has the option to make a direct claim to HMRC, to have the benefit of the tax relief on the allowable published limits.
In either case (direct employer payment, or claim with HMRC), the tax-free payment or the tax relief will be allowable providing all the following conditions are met:
As an example, if an employer were to downsize an office space and make use of shared workstations or hot-desking, it is expected there would only be an available workstation for the employee to carry out the duties of their role on the employer’s premises on contractually agreed days, so the tax-free allowance is permissible. If, however, there were dedicated desks or workstations available to the employees on the employer’s premises, then the conditions would not be met, and the tax-free allowance would not be permitted.
As an additional point, the tax-free allowance is a fixed value and does not require to be pro-rated for the number of days an employee might be contracted to work from home.
In the rush to move to home working to be compliant with Covid-19 legislation, we had to purchase some equipment to enable our employees to fulfil their duties whilst the office was closed. When they return to the office, do they have to return the equipment?
Where an employer has provided home working equipment to employees who will return to their normal place of work, when that place of work becomes safe to attend, the employer will need to consider whether any taxable benefit may arise on the equipment provided. In this regard, it is important to identify ownership of the equipment, in order to determine the relevant tax treatment.
Employer buys the equipment and provides it to the employee
In this scenario, the equipment clearly belongs to the employer, and the employee has merely been using it to fulfil the duties of their role. When the employee is no longer required to work from home, they no longer need the equipment, and so if they are to avoid a taxable benefit arising, they must either return the equipment to their employer, or purchase the equipment from their employer at the current market rate. If they do neither it is assumed that the ownership will have transferred from the employer to the employee, and therefore the employer must assess the current market value of the equipment for the purposes of reporting it on the P11D as a taxable benefit.
Employee buys the equipment, and the employer reimburses
It is clear in this example, that the ownership of the equipment rests with the employee as they purchased the equipment in the first place. As a result, there is no transfer of ownership, and so no taxable benefit arises.
Note of caution: Where employees have been reimbursed for home working equipment, check to ensure there are no agreements or conditions attached to the reimbursement, transferring ownership to the employer. If there are, and the employee keeps the equipment, it must be treated as if the employer had purchased the equipment, as detailed in the first example above.
When our employees moved to home working, they bought the equipment they needed to work from home, and we reimbursed them through the expense process. Do I need to report a benefit in kind to HMRC?
Under normal circumstances, where an employee is not normally required to work from home, and therefore does not meet the requirements of a homeworker, any equipment either provided by the employer, or purchased by the employee and reimbursed by the employer, would normally constitute a taxable benefit. However, in response to the increase in home working required due to Covid 19, the government introduced an easement of the rules regarding reimbursement of the cost of home office equipment to allow this to be deemed a tax-deductible expense. The easement was first stated to end on 5th April 2021 but has since been extended to 5th April 2022.
I have just discovered that some of my employees are working from a home which is outside the UK, are there any payroll implications to consider?
In short, yes! Detailed consideration needs to be given to such arrangements. Working in another country for prolonged periods could generate a foreign tax liability, and if the individual is not absent from the UK for at least one UK tax year (with visits into the UK during that year not exceeding 90 days, of which only 30 days may be spent working), UK tax residency is likely to be maintained, meaning that both UK and foreign tax could be due simultaneously.
This complicated situation could be resolved via the tax return process, whereby a foreign tax credit due under the terms of a relevant Double Taxation Agreement would be claimed and offset against the UK tax liability. All of this would occur after the end of the tax year, but if the Company has been obliged to operate the overseas Jurisdiction’s version of PAYE the employee will have suffered initial double taxation, resulting in significantly reduced take home pay.
The position will also be complicated by the rules governing National Insurance liability and, will depend on whether the other country is within the European Union, is a country with whom the UK has a reciprocal social security agreement, or is a “Rest of World” country. Lastly, the company should also consider whether the employee’s presence working from home outside of the UK may risk forming a Permanent Establishment (PE) of the company in that country.
So my employees WFH overseas may trigger a foreign tax liability?
Possibly, however the position will be determined by the local Revenue Authority’s interpretation of various international rules. The Organisation of Economic Cooperation and Development (OECD) issued guidance to member states at the start of the Covid crisis indicating that broadly those “caught” in another country because of the restrictions placed on movement should be treated as though they were actually working in the usual place of work.
However, this is merely a recommendation, and it is down to each member country to decide on their individual approach. As lockdown eases, the justification for turning a blind eye to people who have prolonged periods of working from home in another country, also reduces.
Not every jurisdiction in the world will require a non-resident employer to operate payroll withholding, and in those countries responsibility for making the necessary declarations and paying tax will sit with the employee, usually through the tax return process. But many countries do expect non-resident employers to operate their payroll system, and this will not in itself cause the UK obligations to cease.
Employees allowed to drift into a permanent working from home arrangement overseas will have taken on many of the aspects usually attributed to those sent on formal secondments abroad.
What about National Insurance when people WFH abroad?
The UK/EU Trade and Cooperation Agreement broadly keeps the position regarding social insurance post Brexit as that applying between full EU member states. There are three principles to consider:
If individuals have been working wholly from home in another EU state, then the first principle of “Pay once, Pay where you work” should apply. But the EU Commission issued a note to member states in April 2020 instructing them to ignore the temporary presence of individuals working from home because of the crisis, and to treat them for social insurance purposes as continuing to work in the usual country.
As with tax, the longer the WFH arrangements go on for, the more likely that a permanent change to working arrangements has been made de facto. The conclusion therefore is that “Pay once, Pay where you work” should then apply. The EU rules are enforceable cross border on non-resident employers, and this risk should not therefore be ignored.
It may be that on a return to work you are contemplating ongoing WFH arrangements with a requirement to visit the company premises set as a given number of days per month. The Multi State Worker rules mean that where an individual works in 2+ EU countries then the contributions of the member state of residence will be due if the individual performs at least 25% of regular work there. So, an employee WFH in France who returns to the UK for one week a month to attend the office, and who works the rest of their time at home in France, will be liable for French contributions.
Looking further afield, the UK’s network of reciprocal social security agreements specify ordinarily, the contributions of the country where the work is being performed in will be due, with those sent on an assignment remaining enrolled in their home country scheme. So, if an individual has started WFH in Canada, this means Canadian contributions will be due. Remember that reciprocal agreements do not recognise the status of multi state workers (this is a unique EU concept) so if the employee routinely starts to work in the UK and the home country there is a risk that both country’s contributions will be due.
Turning attention to the Rest of World countries, such as India, Singapore or China, where a UK resident who is employed by a company with a place of business in the UK goes to work in a Rest of World country, UK NIC remains due for the first 52 weeks abroad but thereafter liability ceases. The other country may also levy contributions simultaneously, especially if the employer has a permanent establishment in that country.
If all social insurance liability has ceased, both in the UK and in the country where the employee is WFH, the employer should give consideration as to how coverage will be provided for access to medical services, work accident insurance, retirement pensions and any of the other life risk events that social insurance typically covers.
For a more in-depth guide to payroll in the UK take a look at our guide: Understanding Payroll in the United Kingdom.
As ever, outsourcing your global payroll administration to a dedicated and experienced team may be the best way to stay compliant through these times of change. The right global payroll solution helps your business maintain its international momentum - offering the flexibility to scale up or down to meet your needs in the UK and beyond.