Reimbursed expenses and benefits for homeworkers

Many homeworkers rely on the use of computers and telecommunications to carry out their duties and are commonly known as "teleworkers". From April 2003, employers may reimburse the additional household expenses incurred by teleworkers without any liability for income tax or NICs. The Inland Revenue's latest Tax Bulletin contains an article about the application of the new statutory rules.

These new provisions apply only where there are "arrangements" made between the employee and the employer for the employee to work regularly at home. They do not apply to informal situations, e.g. an employee who simply takes work home to perform in the evenings or at weekends. Rather, there must be an agreement for the employee to perform some work at home rather than on the employer's premises, e.g. where the employee works two days a week in the office and three days a week at home.

The additional household expenses that employers may reimburse must be those connected with the everyday running of the employee's home. Examples are:

• additional costs of heating and lighting the work area
• the metered cost of increased water use
• the increased charges for Internet access or telephone use
• the increased cost of household contents insurance
• a liability for business rates.

As it may be difficult to determine and substantiate such additional costs, the Inland Revenue allows up to £;2 per week to be paid without the need to keep specific records or justify the amount paid. More may be paid but it must be justified. This could be done in one of two ways:

• agreeing a scale rate payment with the employer's Inland Revenue office that does no more than reimburse the average additional costs that employees meet while working at home. Provision can be made for it to be increased annually in line with inflation. If the scale rate is based on reasonable estimates of household costs, the employee does not need to keep further records of costs incurred.
• reimbursing the actual costs incurred. This would require both the employer and the employee to keep records to substantiate the payments.

The ability of employees to claim additional household expenses does not necessarily mean that they can claim tax relief for expenses that are not reimbursed by the employer. To qualify for tax relief, the work at home must be a requirement of the employment, not simply an arrangement between the employer and the employee. The Inland Revenue's view is that most homeworkers work at home out of choice, not because there is a contractual obligation for them to do so, and any additional household expenses that are not reimbursed do not therefore qualify for tax relief.

The Tax Bulletin article also considers issues around a homeworker's workplace status. A recent tribunal decision found that, when the particular employee in this case travelled from home to work, this was a commuting journey and there was no entitlement to tax relief for the journey. The employee worked four days at home and worked one day each week in the employer's office. There was no indication that the visits to the office were for a limited duration or for a temporary purpose, so the office remained a permanent place of work.

Consequently, the Inland Revenue advises employers to review the workplace status of employees who start to work at home. If visits to the employer's office become irregular or self-contained, e.g. to attend team meetings, it may become a temporary place of work. In that case, the journey to and from the employee's home qualifies for tax relief and the employer would be able to obtain a dispensation to cover reimbursement of the travel expenses.

The Tax Bulletin article does not, however, tackle the issue of whether, in the case of homeworkers who are working at home under an arrangement with the employer, the employee's home becomes a permanent place of work. If both the employee's home and the employer's office were permanent places of work, the journey between them would also qualify for tax relief. We have asked the Inland Revenue to comment further on this issue.
(Source: www.inlandrevenue.gov.uk/bulletins/tb68.pdf )
...back to 26 December 2003

London Congestion Charging

Congestion charging was introduced in London on 17 February. The Revenue has confirmed the rules that apply to the reimbursement of congestion charges as business expenses.

If congestion charges are paid by employees using a company car or van on which a benefit charge is made, reimbursement does not give rise to a separate tax charge, any more than do such items as insurance and road tax that are covered by the benefit charge.

If congestion charges are reimbursed to employees using their own vehicles, tax relief depends on whether or not the travel is in performance of the employment duties or necessary travel to a temporary place of work. There is no tax relief if the travel involves ordinary commuting or private travel.

As with all business travel expenses, reimbursement of congestion charges must be reported on form P11D unless the particular expenses are covered by, and paid under the terms of, a dispensation. The Revenue has invited employers to contact their tax office to arrange for the reimbursement of congestion charges to be included in their dispensation.
Payroll Briefing 18 - 28 March 2003