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COVID-19 and ‘new normal’ necessitate rule changes for employee benefits

28 September 2020: The employee benefits-in-kind (BiK) regime is not fit for purpose for a post-COVID world ICAEW has told HMRC.

ICAEW’s Tax Faculty has submitted a series of representations to HMRC recommending that improvements are needed to the employee BiK and expenses regime in light of the coronavirus pandemic.

It argues that the regime needs to adapt to accommodate changes in working practices arising from the COVID-19 lockdown and social distancing measures and the “new normal” when many more employees will be working from home.

ICAEW’s submissions cover:

  • The 24-month travel and subsistence temporary workplace time limit (ICAEW REP 71/20).
  • Temporary overnight accommodation and transport costs for key workers (ICAEW REP 72/20).
  • Reimbursements for and provision of equipment for homeworkers (ICAEW REP 73/20).
  • The £6pw/£26pm homeworking allowance (ICAEW REP 74/20).

On the 24-month travel and subsistence temporary workplace time limit, ICAEW has requested that the 24 month clock be stopped where employees are unable to work at the temporary workplace owing to their being furloughed or told to work from home.

In respect to employers providing temporary overnight accommodation and paying taxi costs for key workers in the health and care sectors to minimise the risk of cross-infection of patients and workers and their families, the Tax Faculty has argued that these be exempted from the regime. Currently the accommodation is a taxable BiK and the employer has to account for tax and NIC on the grossed-up value of fares for taxis through a PAYE settlement agreement.

As to reimbursements by employees for office equipment bought by homeworkers, following earlier representations, relief is now given provided certain conditions are met, but only until 5 April 2021 (see SI 2020/524). Now that working at home is likely to become the new normal, the Tax Faculty has recommended that the relief should be made permanent as there appears to be no logical reason why the method of provision alone should make a difference in the tax treatment.

The £6pw/£26pm homeworking allowance is presently available tax-free to homeworkers and, following earlier representations, HMRC’s guidance (EIM32815) has been clarified so that homeworking employees can claim the allowance as an allowable deduction even if they are not reimbursed by their employers, provided certain conditions are met.

While there is still a risk of contracting COVID-19, responsible employers are likely to allow employees to choose whether they work from home or in the office and ICAEW has recommended that employee choice should not be fatal to the deductibility of expenses incurred by homeworkers.

Looking ahead to the new normal, the world has changed and ICAEW concludes that the BiK tax legislation is not fit for purpose in the light of the likely increase in employees working from home.