Hybrid working – have you considered the tax implications?

As many employers have adopted hybrid working arrangements on a permanent basis, there are a number of important employment tax and benefits issues to keep in mind.

Employees who have to commute to work may have previously received some form of travel reimbursement from their employer if they were mainly working from home during the pandemic, which would be taxable and liable to National Insurance (NIC). But hybrid working raises the question of the employee’s permanent workplace, and whether reimbursed travel expenses are considered taxable.

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. However, HM Revenue & Customs (HMRC) emphasise that in most cases, it is the employee’s personal choice to work from home.

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 given to any expenses reimbursed.

Hybrid working arrangements must be carefully structured for home to be a permanent workplace, and travel to an office may still be taxable.

In line with HMRC’s home working guidance, employers can pay staff £6 per week tax-free to cover increased energy costs incurred while they are working from home. No records are required unless more than £6 per week is claimed.

Employees whose employers do not cover these costs may still claim tax relief on £6 per week as additional household expenditure through the government microsite.  Employees can claim this tax relief for the entire year, regardless of the days they worked from home.

The tax code is amended to provide tax relief, and if the employer does not pay the full amount, the employee can claim tax relief for the difference.

Employers might want to consider adopting a formal home working arrangement and may wish to have a home working policy developed, please contact 121 HR Solutions on 0800 9995 121 to discuss your requirements.