The Covid-19 pandemic has changed the way people work and, in turn, has affected the expenses employees have incurred. What impact will this have on the annual P11Ds for 2020/2021, which are due for submission to HMRC by 6 July 2021?
Employees working from home – extra costs
Many employees have been forced to work from home since the first lockdown in March 2020. Where this is part of an employer’s home working policy, the employer can pay the employee an unreceipted allowance of up to £6 per week (£26 per month) from 6 April 2020.
Alternatively, employees may claim tax relief to the same value from HMRC while the pandemic restrictions continue. In either case, these payments do not need to be recorded on P11Ds.
Employees can be paid or can claim their actual extra costs if these are higher, but then you need to keep evidence that they qualify for deduction.
Equipment for employees to work from home
If an employer provides equipment, services and supplies to an employee working from home (such as a computer, desk, chair, printer, etc.), there is a benefit in kind exemption as long as:
- the reason for providing the equipment was to enable the employee to work from home,
- any private use is insignificant, and
- the employer owns the equipment.
If the employee returns the equipment to the employer once the home working period ends, there are no tax implications. However, if the employer gives the equipment to the employee or transfers it at less than its market value, there will be a taxable benefit that will need to be recorded on a P11D. The taxable benefit is the difference between the market value and what the employee has paid for it (if any).
Usually, if an employee buys equipment that they then own, and the employer reimburses the cost, this is a taxable benefit and would need to be included on a P11D. However, because of the pandemic, HMRC introduced a temporary tax and national insurance contribution exemption to cover such purchases needed due to the pandemic. This applied from 16 March 2020 until the end of the 2020/2021 tax year.
Mobile phone expenses
One feature of working from home is that many employees were forced to use their mobile phone for work-related calls.
If the mobile phone contract is between the employer and the supplier, no taxable benefit arises and there is no P11D reporting obligation.
The situation is different where the employee uses their own mobile phone. The following rules apply:
- Where an employer reimburses itemised business calls, texts and data only, the sum reimbursed is not taxable
- Where an employer reimburses a fixed call plan (for example, £35 per month for calls, data and texts), the cost is taxable under PAYE
- Where the business use and personal use cannot be determined, the total amount is taxable.
If the employer arranges Wi-Fi installation for the employee so they can work from home during the pandemic, the cost is tax free and not reportable on a P11D.
If the employee has their own existing broadband connection, then if it is possible to split the usage between personal and business (for example, as a necessary top-up data plan), then the reimbursement of the business element will not be taxable. Otherwise, any reimbursement will be treated as a benefit in kind and needs to be included on a P11D.
As mentioned above, the deadline for submission of P11Ds is to HMRC is 6 July 2021.
Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances. We suggest you take professional advice before taking any action in relation to the issues discussed above.