Hybrid and remote working within the UK – what next?
The Office of Tax Simplification is preparing its report and recommendations – what might this mean for employers?
The Office of Tax Simplification is preparing its report and recommendations – what..
Hybrid and distance working – previously the exception – has become the rule for many employees. Crucially in the competition for talent, it’s now a key expectation of the labour market. The Office of Tax Simplification (OTS) previously announced a review looking at the tax and social security implications of both domestic and international hybrid and remote working arrangements, with its findings and recommendations to the Government expected by the end of the year. KPMG in the UK has responded to the OTS’s call for evidence, putting forward a number of suggestions as to where improvements could be made for the benefit of employees, employers, and HMRC. This article discusses our response in respect of hybrid and remote working within the UK, and what action employers should consider taking to confirm they have complied with their associated employment tax obligations. It may be read in conjunction with our related article on the international aspects of the OTS review.
Why is this important?
An increasing number of employers now offer hybrid and remote working within the UK. However, implementing such arrangements carries some employment tax risks.
In our response to the OTS’s call for evidence, we highlighted areas where employers report challenges with domestic employment tax compliance (see our separate article discussing international considerations). Our key submissions are summarised below.
Home working equipment
Under current rules, an employer can provide employees with home working equipment and services without tax or NIC charges arising provided certain conditions are met, but cannot (since the temporary COVID-19 easement ended) reimburse an employee for home working equipment or services they purchase themselves. This distinction can be confusing for some employers, who might inadvertently trigger employment tax charges when reimbursing employees for the costs of necessary equipment or supplies.
We suggest a permanent exemption be considered for employer reimbursed homeworking equipment and services, in line with that which was introduced as a temporary measure during lockdown, or that HMRC clarify in guidance when, and in what circumstances, they would accept an employee acquires home working equipment or services as agent for and on behalf of their employer, which would allow reimbursement to be made without income tax or NIC charges arising.
Employers providing home working equipment must retrieve and store this when employees leave, or administer a benefit in kind charge on the secondhand value of equipment they allow leavers to retain. The costs of either course of action are often disproportionate to the low value of the equipment. We consider that the introduction of a de minimis tax exemption could be appropriate here to reduce administration for both employers and HMRC in respect of equipment leavers are allowed to retain because its retrieval is not cost effective for the employer.
Home working expenses
Employers can make payments to meet or reimburse reasonable additional household expenses free of tax and NIC to employees carrying out duties of their employment at home under a homeworking arrangement. However, employers can be uncertain as to whether they have implemented arrangements which qualify for the relief, and we suggest that HMRC improve their guidance in this area. The rate that can be paid for such expenses on an unreceipted basis is currently £6 per week or £26 per month, which has only changed marginally in previous years, despite increases in the cost-of-living. We suggest this rate be reviewed by HMRC in order for the easement to remain meaningful.
Permanent workplaces and travel expenses
Determining an employee’s ‘permanent workplace’ is necessary to ascertain whether travel expenses that they incur can be reimbursed free of tax and NIC. In 2014, the OTS reported that the legislation and guidance in this area lacked clarity in respect of what travel and subsistence expenses could be reimbursed, including for employees who are office-based but allowed to work at home some of the time.
Since this report was published, the number of remote and hybrid working employees has increased. Whilst HMRC have published additional examples in their guidance, employers may remain unsure of the correct position in some circumstances. For example, where employers have reduced office facilities and can no longer accommodate all employees on site every day, so there is a practical requirement to work from home, could the employee’s home then be considered a ‘workplace’ with travel to the employer’s site eligible for tax free reimbursement?
We suggest that the OTS’s earlier report and recommendations be revisited in light of hybrid and remote working patterns.
Availability of exemptions on certain benefits-in-kind
Where an exemption or relief is linked to an employee’s location or workplace, the availability of these may be affected for employees working on a hybrid or remote basis. For example, for there to be no charge to tax on the provision of a bicycle or cyclist safety equipment, one of the conditions that must be met is that the employee uses the cycle or equipment for ‘qualifying journeys’. This means that the cycle must be mainly used by the employee for the whole or part of the journey between their home and workplace or for business travel. Remote and hybrid workers may no longer meet this condition, however from a public health and environmental perspective (and in line with their Environmental, Social and Governance agendas) many employers will consider that encouraging employees to use a bicycle should be viewed positively.
We suggest that tax reliefs with some link to an employer’s premises be reviewed to ensure that hybrid and remote workers are not discouraged from accessing certain benefits due to a loss of tax advantages.
What should employers do now?
The OTS expects to publish its report on hybrid and remote working later this year and we will provide a further update once this is available. In the meantime, employers should review their employment tax compliance and consider whether any unexpected tax or NIC exposures may have arisen in connection with employees’ hybrid or remote working arrangements.
To talk through how KPMG in the UK can assist you with reviewing your tax compliance and benefits offering, please speak to the authors below or to your usual KPMG in the UK contact.