TAX - HOMEWORKING EQUIPMENT - 26.01.2021

Tax and a gift of equipment for homeworking

Old exemption

For many years a tax and NI exemption has applied to goods and services provided by employers to employees (including directors) for work purposes from which they also gain some private benefit. For example, a computer for homeworking purposes which the employee also uses for personal email and watching TV. The exemption applies whether the goods or services are provided to the employee in their normal workplace or at home, as long as the private use is “insignificant”. HMRC interprets insignificant fairly generously.

New exemption

In May 2020 HMRC announced a new exemption which, in effect, extends the exemption mentioned above to the situation where the employee (rather than the employer) provides and pays for “equipment” for homeworking , but the employer reimburses the employee the cost. The new exemption only applies:

• if the employee needed the equipment so they could work at home because of coronavirus
• had the employer provided the equipment the old exemption would have applied; and
• the reimbursment takes place on or before 5 April 2021.

Tip. The exemption applies to all equipment needed for homeworking, not just computers, e.g. desks, chairs, filing cabinets, etc.

A gift

Our subscriber’s position was slightly different. He had been monopolising the family PC so he could work at home during lockdown. His wife decided it would be better for everyone if she bought our hard-working subscriber his own PC. As chuffed as he was with the gift he wondered whether it might have been more tax efficient for his company to have paid for it, especially in light of the new tax and NI exemption.

Are the conditions met?

At first sight it appears the conditions for the new exemption aren’t met, because it was our subscriber’s wife and not him who paid for the computer. It seems unfair that if the company reimburses our subscriber’s wife it would count as a taxable perk (for our subscriber) whereas if he had bought it and been reimbursed, it would not.

Trap. The trouble is that the new exemption refers to “expenses incurred by an employee in respect of equipment” and not expenses incurred by anyone else. While HMRC might be prepared to follow the spirit of the law and allow the exemption, in our subscriber’s case he can’t rely on it.

Tip. The reimbursement might slip through the tax and NI net but on the other hand it might not. Therefore, to ensure some tax efficiency within the strict letter of the law, our subscriber can claim a tax deduction for the PC under the capital allowances rules. These allow a tax deduction of up to 18% of the value of the computer at the time it was first used for work per year (see The next step ). As the purchase was within a couple of weeks of it being used for work, it’s not unreasonable to claim the deduction based on the full cost of the computer.

For an illustration of how the tax deduction is worked out, visit https://www.tips-and-advice.co.uk , Download Zone, year 22, issue 08.