Home office expenses exemption – COVID-19

HM Treasury is coming to the aid of employees who have had to incur expenses to set up a home office, following the Government’s mandate that those who can work from home should do so,

These are not small change expenses, and employees will be grateful for the relief provided by this latest measure for home office expenses.

Existing tax exemption for home office equipment

The current situation is that there is a tax exemption for home office equipment where:

• the cost is incurred directly by the employer,
• the employer retains ownership of that equipment, and
• the use of the equipment by the employee for private use is not significant.

There is currently no exemption if the employer reimburses the employee.

New tax relief for reimbursed home office expenses

The new rules introduce an exemption from income tax and National Insurance Contributions (NICs) where employers have reimbursed employees for costs incurred in buying their own home office equipment.

The exemption applies only where two criteria can be satisfied:

1. The home office equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak; and
2. The provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer. In other words, private use of the equipment must be negligible.

The exemption will be conditional on reimbursement in respect of home office expenses for equipment being made available to all employees on similar terms.

Timescales for exemption 

The regulations introducing the exemption were made on 20 May 2020 and come into force on 11 June 2020. The exemption is a temporary measure and runs until the end of the tax year 2020-21.

Provided all the requirements for the exemption to operate are met, HMRC will use its collection and management discretion not to collect tax and (NICs) due on any reimbursed payments made from 16 March 2020 until 11 June 2020.

Employers will need to keep a record of who they have reimbursed and ensure that, however they reimburse their employees, these payments are treated as tax-exempt.

If you have any queries regarding home office expenses or any other related tax measures, contact our tax experts.