Employer Tax Considerations for Employee Expenses and Benefits During COVID-19
The ongoing COVID-19 pandemic has generated a number of challenges for employers, particularly in dealing with the working arrangements of employees as the national and local restrictions have been implemented by the Government.
Since the start of the tax year (6 April 2020), many employers have had to operate with their employees working remotely from their main or usual place of work; more recently, there has been a partial return to the normal working environment for some.
Due to the adjustment to these unofficial, temporary or, in some cases, indefinite “homeworking” arrangements for employees, employers have wrestled in how to deal with employees expenses and benefits in different situations.
What do employers need to consider?
Employers will need to ask themselves a number of questions relating to the provision of expenses and benefits to employees. These include:
- What effects does the change in circumstances have on an employee’s permanent workplace and what impact does it have on reimbursing of travel and subsistence?
- What can an employer reimburse for an employee who is working at home and is incurring extra expenses, and what are the tax and National Insurance consequences for doing so?
- Does an employer need to reimburse the employee for anything and if they don’t, can the employee claim any tax relief for the expenses they have incurred over the period of homeworking?
- What does the employer need to do with the provision of benefits in kind provided to employees since the start of the tax year such as Company cars and fuel cards, employee loans and salary sacrifice offerings such as cycle to work and corporate transport schemes?
- Are there any tax and National Insurance traps that employers need to be aware of when making any payments to employees during this period and how does an employer report anything taxable to HMRC?
The answers to these questions will depend on existing policies, contracts, workforce, and specific situations and therefore each employer would need to carefully consider what their current (and potential) working patterns are for their employees, and then determine what they can do with expenses and benefits.
What must employers do now?
HMRC will be increasing their compliance activity shortly and it is important that employers are ready for any enquiries, so they can avoid any financial penalties and/or statutory interest for inadvertently getting things wrong.
All employers now need to discuss how COVID-19 has impacted on employees’ situations and how their benefits have been impacted (including looking to review various benefits for tax effectiveness).
It is likely that employers will have to amend expenses and travel policies and need to reconsider how and what benefits they provide.
If you have any immediate questions about the information above, please do not hesitate to get in touch.
Employment Taxes Partner
T: 07810 852 362
Employment Taxes Senior Manager
T: 07392 870 199
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