What expenses are taxable when working from home?

What expenses are taxable when working from home?

If any of your employees are working from home due to Coronavirus because your workplace has closed or you are following advice to self-isolate then you may be able to deduct some of the costs of home working as a taxable expense.

The rules around expenses and whether or not they are taxable differs depending on the type of equipment, service or supply used and so we have covered the main categories below:

Mobile phones and SIM cards (no restriction on private use)

If you provide a mobile phone and SIM card without a restriction on private use, limited to one per employee, this is non-taxable.

Broadband

If your employee already pays for broadband, then no additional expenses can be claimed, but if a broadband internet connection is needed to work from home and one is not already available, then the broadband fee can be reimbursed and is non-taxable.

The broadband must be provided primarily for business use and any private use must be limited.

Laptops, tablets, computers, and office supplies

Where any of these items are used for business purposes and not significant private use, these are non-taxable. Where an employee has brought office equipment or supplies and wishes to be reimbursed this is taxable and should be reported via PAYE Settlement Agreement.

Electricity or heating

Employees are entitled to a payment or reimbursement of up to £4 a week (increasing to £6 a week from 6 April 2020), which is non-taxable. This is intended to cover additional household expenses incurred when your employee is working from home.

Where a claim exceeds this amount then an employee should check with you beforehand to see if you will make these payments and you should keep receipts.

Employer-provided loans

A salary advance or loan to help your employee at a time of hardship counts as an employment-related loan. Those loans with a value less than £10,000 in a tax year are non-taxable.

Temporary accommodation

If your employee needs to self-isolate but cannot do so in their own home, you can reimburse hotel expenses and subsistence costs, these are taxable.

Use of a private vehicle for business

Employers can pay approved mileage allowance payments of 45p per mile up to 10,000 miles (25p per mile thereafter) free of tax and National Insurance contributions.

If you do not pay mileage allowance, your employee can claim tax relief through their Personal Tax Account.

Reporting expenses to HMRC

Any expenses or benefits which are related to Coronavirus can be reported via a PAYE Settlement Agreement, which will allow you to settle tax and National Insurance contributions on any expenses or benefits, even though the responsibility would usually be on your employee, or on both you and your employee. This applies to Coronavirus related items only, for example, a new desk can go onto a PAYE Settlement Agreement.

Where you are already including benefits in kind in your payroll reporting you can continue to report expenses and benefit this way, or they can be reported through P11D returns.

It is important to keep a record of all expenses claimed, although you do not have to report of every instance of private use to prove a claim for exemption.

Any non-taxable expenses or benefits should not be reported to HMRC.

The Coronavirus Jobs Retention Scheme and employers’ National Insurance and Pension contributions

The Coronavirus Jobs Retention Scheme and employers’ National Insurance and Pension contributions

Much of the coverage of the Coronavirus Jobs Retention Scheme (CJRS) has focused on the Government’s commitment to cover the cost of 80 per cent of the usual wages of ‘furloughed employees’ – those who remain on the payroll but are not working.

In fact, the CJRS will pay employers more than 80 per cent of an employee’s gross monthly salary while furloughed, because it will also meet the cost of Employers’ National Insurance Contributions (NICs) and the minimum automatic enrolment employers’ pension contributions that are attracted by the 80 per cent figure.

If you choose to top-up a ‘furloughed’ employee’s salary to 100 per cent, you will also need to meet the additional costs in terms of the NICs and pension contributions attracted by the additional 20 per cent payment. Employees will pay Income Tax and their own NICs from their gross salary as usual.

The Government has said that before the scheme goes live in April, it will issue guidance on calculating claims for Employers’ NICs and minimum automatic employment pensions contributions.

Soft-landing period for MTD for VAT extended to April 2021

Soft-landing period for MTD for VAT extended to April 2021

HM Revenue & Customs (HMRC) has announced that the second phase of Making Tax Digital for VAT will now be postponed until 1 April 2021.

The first year of MTD was subject to a one-year “soft-landing period”, which has seen HMRC holding back from pursuing businesses that should have signed up.

Similarly, HMRC has taken a lenient approach in cases where businesses that have signed up to MTD have had problems with making their first returns for whatever reason.

However, from 6 April this year, this soft-landing period was due to come to an end. The latest announcement from HMRC in response to the COVID-19 pandemic means that businesses now have until their first VAT return period starting on or after 1 April 2021 to put the necessary digital links in place and comply with the MTD rules fully.

The change also means that penalties for failing to report VAT via MTD will also be postponed. These fines could have been up to £400, depending upon the size of the business.

Despite the changes to the rules, it is important that businesses still prepare themselves for MTD for VAT. If you haven’t taken action already to become compliant, it is important that you do so now.

Suspension of director liability for wrongful trading

Suspension of director liability for wrongful trading

The Government has announced important changes to UK insolvency law that suspends director liability for wrongful trading.

Seeking to provide reassurance to business directors in light of the ongoing COVID-19 pandemic, the Government has retrospectively suspended restrictions around wrongful trading from the 1 March 2020 for three months.

Under English law, where a company continues to trade, even in the face of unavoidable insolvency, the company’s directors can be found personally liable for the losses suffered to creditors as a result, potentially leading to a court-ordered contribution to the assets of the insolvent company.

By suspending the rules, directors of struggling business who continue to operate, in the full knowledge that they face the prospect of insolvency, will not be penalised for doing what they can to keep their business operational.

Business Secretary Alok Sharma announced the changes and said they would offer a ‘breathing space’ for companies undergoing a rescue or restructure process to help them avoid insolvency.

On top of this suspension, the Government will also introduce new emergency legislation that will:

  • Create new restricting ‘tools’, including a moratorium, for companies giving them a holiday from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure.
  • Introduce a new restructuring plan, that binds creditors to that plan;
  • Allow companies to buy essential supplies while attempting a rescue or restructure.

The Government hopes that by taking these measures they can reduce the number of contract cancellations, supply chain issues and a wide range of other issues that are affecting the UK economy.

Holiday rules relaxed to allow annual leave to be carried over to next two years

Holiday rules relaxed to allow annual leave to be carried over to next two years

The Government has announced that existing rules around annual leave will be relaxed to allow workers who have not used their statutory annual leave entitlement this year due to COVID-19 to carry it over into the next two years.

Most full-time British workers are entitled to 28 days holiday each year, including bank holidays.

However, unless allowed for within an individual’s existing work contract or an employer’s workplace policies, this entitlement cannot normally be carried between leave years (the 12-month period during which holiday time is recorded), which means that a worker can lose their paid holiday time if they do not use it.

Employers are required by law to try and ensure their workers take their statutory entitlement in any one year, with penalties issued against those who fail to do so.

The new measure introduced by the Government will allow workers to carry up to four weeks of unused leave into the next two leave years, thus reducing the chance of an employer being penalised and freeing up the time for employees in key sectors.

It is hoped that this change will allow staff to continue working as part of a national effort against the Coronavirus without them losing out on missed holiday.

The changes amend the existing Working Time Regulations that apply to almost all workers, including agency workers, those who work irregular hours, and workers on zero-hours contracts.

Despite the change, there remains an obligation on an employer to ensure that their workers have an adequate opportunity to take their holiday.

This holiday cannot be replaced with a payment in lieu unless the worker is leaving their employment.

Coronavirus support for people working through their own limited company

Coronavirus support for people working through their own limited company

If you work through your own limited company, you will no doubt have been disappointed to discover that the measures announced by the Chancellor last week for self-employed individuals do not apply to you.

However, the guidance for the use of the Self-Employed Income Support Scheme (SEISS) advises that there may be two further avenues of Government support open to you – the Coronavirus Jobs Retention Scheme (CJRS) and the Coronavirus Business Interruption Loans Scheme (CBIL).

Coronavirus Jobs Retention Scheme (CJRS)

The CJRS is open to all PAYE employees on the payroll on 28 February 2020 who have since been ‘furloughed’. This means that if you pay yourself through PAYE and designate yourself as ‘furloughed’, you will likely be eligible for a grant covering 80 per cent of your usual salary plus Employers’ National Insurance Contributions (NICs) and minimum employers’ automatic enrolment pension contributions.

However, being ‘furloughed’ means that you cannot undertake any of your employment duties, which may well be unfeasible if you are the only employee of the company. Moreover, the scheme is not expected to begin paying out until late April.

You should also bear in mind that it will not cover dividend income you would normally receive or any other performance-related pay you may receive.

Coronavirus Business Interruption Loans Scheme (CBILS)

The Coronavirus Business Interruption Loans Scheme (CBILS) is a potential option if you need funds to be able to pay yourself until the CJRS pays out in late April.

Facilities are available under CBILS £1,000 to £5 million, subject to a lender’s criteria. CBILS will be interest-free for the first 12 months, as the Government has guaranteed to cover these payments during this period.

CBILS may also be an option if accessing the CJRS is not appropriate in your circumstances.

  1. To access the scheme, decide which form of finance you require and identify which accredited lenders can offer it. This can be done by using the British Business Bank’s filter tool by clicking here.
  2. This filter allows you to put in the region where your business is based and the type of loan you require and will provide you with a list of suitable lenders.
  3. Research what each lender is offering via their website and decide how much funding you require.
  4. Collate all necessary information to make an application, including an up to date business plan, detailed management accounts and cash flow/financial forecasts.
  5. Make an application with your chosen lender that suits your requirements. The loan application process is likely to differ from lender to lender.

The British Business Bank has indicated that it may be beneficial to seek finance first through a lender that you have an existing relationship with.

Some lenders have advised that they may require personal guarantees from directors against any loans, although this cannot include your main residence.

Grunberg & Co are open for business

Grunberg & Co are open for business

Grunberg & Co. are committed to assist with the containment and delay of spreading of the Coronavirus and during these uncertain and unprecedented times we want to reassure you that the health of our staff, clients, contacts and suppliers is extremely important to us.  Therefore, following advice from the Government, all our staff are now working from home and the office is no longer receiving visitors.

Please rest assured however that Grunberg & Co. remains open for business and we are fully committed to helping our clients and contacts through this difficult time.

Thanks to our use of the latest technology, our team can offer a similar level of service to you from home as they can from our office, which means that the support and services that you receive should be unaffected by this sudden, but expected, change. 

We are continuing to monitor the situation daily and we will be in contact with you should any existing arrangements need to change. 

We thank you for your ongoing support and patience as we adapt to this evolving situation. 

By working together during this crisis, we can help to protect our communities and hopefully soon look to a brighter future. 

Please do not hesitate to contact us should you have any enquiries.

Commercial Rent Deferrals

Commercial Rent Deferrals

To support UK businesses, the Government has confirmed that commercial tenants that are unable to pay their rent due to disruption caused by the Coronavirus pandemic will not face eviction.

The Government had already banned evictions on private residential tenants but has now confirmed that the three-month moratorium on evictions and debt enforcement will be extended to cover commercial leases as well. 

Although many commercial landlords and tenants are already coming to voluntary arrangements about rental payments, the Government is taking steps to support businesses struggling with their cash flow due to Coronavirus who are concerned about the prospect of debts and possible eviction.

The new measures confirmed in the emergency Coronavirus Bill ensures that no business will be forced out of their premises if they miss a payment in the next three months.

However, tenants will still be liable for the rent due in arrears after this period and the Government has said it is actively monitoring the impact on commercial landlords’ cash flow to ensure their operations are not put at risk. 

It is not yet clear how tenants will be expected to repay deferred rent payments and this might differ from one lease to another, but a variety of options may be available, including:

  • Extending the length of the lease to cover the time lost
  • Distributing the lost rental income across the entirety of the remaining lease period
  • Increasing rents in future to make up for any loss. 

Tenants and landlords must discuss these options and agree on the future arrangements of the lease.

Here to Help

If you are affected by this change then you should seek advice at the earliest opportunity. To find out more about our services and support, please contact us.