Hybrid working – have you considered the tax implications?

HM Revenue & Customs has offered various forms of tax relief while employees were required to work from home during the pandemic, but these will soon come to an end.

Following the recent removal of work from home guidance – thousands of employers have begun to see employees return to offices for at least a few days a week.  However, it is more evident that employers plan to adopt hybrid working arrangements on a permanent basis. There are a number of important employment tax and benefits issues that they should keep in mind.

Hybrid working raises the question of where the employee’s permanent workplace is, and if reimbursed travel expenses are considered taxable if they are asked to attend the office.  For tax purposes, a home can be a place of work, but is not always a permanent workplace – to be a permanent workplace, the employee must be required to work from home and perform substantive duties there.

Ordinarily, a permanent workplace is any place where an employee’s attendance is frequent and follows a pattern. Travel between two workplaces is considered business travel; however, if one of those locations is the employee’s home, HMRC may contend this is ordinary commuting (unless home is a “permanent workplace”) and any reimbursements are thus taxable and liable to NIC.

A temporary workplace is where the employee performs duties of “limited duration” or for a “temporary purpose”. If an employee works at the same place for more than 24 months continuously, it is considered their permanent workplace. HMRC defines continuous work as doing at least 40% of your work from a single location.

The key question is whether an employee’s presence at the office has now become temporary or is simply the normal performance of their role. Hybrid working arrangements must be carefully structured for home to be a permanent workplace, and travel to an office may still be taxable. Under hybrid working, an employee may have a pattern of home and office working. In this case, any attendance at the office would be “in the performance of their duties” and the office would be their permanent workplace. Any reimbursed costs for travel from home to a permanent workplace are taxable and liable to NIC.

In contrast, if the company no longer has an office and employees are forced to work from home, their homes may now be considered permanent workplaces. As a result, business travel can be defined as travel from those residences to other temporary workplaces, and tax relief can be given to any expenses reimbursed.

Should any employer wish to have a home working policy developed, please contact 121 HR Solutions on 0800 9995 121 to discuss your requirements.