Gone are the days of spending five days a week in the office. If the past year and a half has taught us anything, it’s that employees across many different industries can work just as effectively from home as they can in the typical office environment.
And even now that we’re coming out the other side of the pandemic, things are unlikely to go back to the way they were. The future of work is hybrid — with some employees staying in the office, others going fully remote and most splitting their time between the two. Unsurprising, really, given the numerous advantages hybrid working brings for both employers and employees.
But, unfortunately, it’s not as simple as saying ‘you choose’ to staff.
Employers first need to ensure they have a comprehensive and up-to-date hybrid working policy in place covering the various tax issues that arise from some employees working in the office and others working from home.
Let’s look at the payroll and employment tax implications businesses need to be aware of when implementing a hybrid working model…
Provision of home office equipment
Although employers are under no obligation to fit out home offices for staff members, they do have a duty to ensure employees can carry out their work in a safe and healthy environment.
When the pandemic hit, many businesses scrambled to get staff set up to work remotely and invested heavily in new equipment such as laptops and printers.
This equipment is generally exempt from tax as long as it’s only being used for business purposes. There’s also no tax charge on reimbursements to employees for equipment purchased for the sole purpose of working from home.
However, these exemptions tend to be conditional on the employer retaining ownership of the equipment. If the ownership of the equipment passes to the employee, tax liability may occur. So, it’s essential that companies take extra care when updating or replacing old equipment.
Tax relief on commuter costs
Another question that’s likely to be asked by employees returning to the office is whether or not they can receive travel expense tax relief.
Tax relief is typically only available on costs that fall outside of ‘ordinary commuting’ — i.e., not employees travelling from their homes to their permanent workplaces. However, some might argue that the office is no longer their permanent workplace. Equally, a co-working space that employees visit once a week could be considered a temporary workplace.
But as most hybrid working models place no obligation on the employee to be in the office, employees are arguably travelling by choice — making it harder to justify tax exemptions for travel costs. As such, businesses must make it clear to returning employees that ordinary commuting costs still don’t qualify for tax relief.
Companies may also want to consider whether there’s still demand for perks such as workplace parking or season ticket loans and revise arrangements if needed.
Payment of household expenses
Although employees might be saving on typical office-based costs like commuting and lunch, they’ll likely have seen their household expenses increase since working from home.
Employers, therefore, need to decide whether it’s appropriate to contribute towards these additional costs. This decision then needs to be clearly communicated in the updated hybrid working policy. In some countries, employees may also be able to claim back reasonable household costs, such as utilities, incurred while working from home.
In either case, employers should make it clear that these payments don’t relate to fixed costs such as rent or mortgage, which would be incurred regardless of where the employee is working.
The ‘working from home tax’
There have been talks recently of taxing those working from home following the pandemic. Deutsche Bank has proposed a 5% levy, applied daily, for remote workers. Alternatively, the bank suggested that employers who don’t provide their staff with a permanent desk could pay the tax.
Although nothing has been agreed as yet, and this ‘WFH tax’ may never come to fruition, it could impact payroll if it does. So, it’s certainly something for businesses looking to continue operating a hybrid working model to consider.
Working from anywhere
Working from home in the UK or working from an apartment in the south of France? Apart from the weather, what’s the difference? Quite a lot when it comes to payroll and tax.
While the notion of ‘working from anywhere’ is extremely enticing, it does present some problems in practice. And many companies have already learned the hard way that allowing employees to work from abroad can come with some serious tax and compliance risks.
Before agreeing to employees working from another country, it’s important to consider local payroll, tax and social security requirements and the corporate tax implications of possibly creating a permanent overseas establishment, as well as other employment law issues. In some jurisdictions where there’s a dual payroll obligation, the employee’s income could also be subject to double taxation.
So, it’s essential to seek local tax and legal advice from someone who knows what they’re talking about.
Hybrid working is undoubtedly here to stay. We can cover all the tax, payroll, legal and HR considerations involved with this new way of working through our total employer services — keeping you on the right side of compliance. Get in touch with our team today to find out more.