Is it the case that a Benefit in kind would indeed arise on the excess over £312, or are HMRC mistaken?”
There may be some overlap here between the exempt homeworking payments under s316A ITEPA 2003 and the availability of income tax relief under s336 ITEPA 2003 for the additional costs of working from home which are reimbursed by the employer.
Homeworking exemption under s316A ITEPA 2003
For reimbursements of more than £6 per week to be exempt under s316, there must be arrangements between the employer and the employee, and the employee must work at home regularly under those arrangements.
“Regularly” in this context means where working at home is frequent or follows a pattern. For example, where an employee agrees to work 3 days each week on the employer’s premises and 2 days at home.
The exemption does not apply where an employee works at home informally and not by arrangement with the employer. It applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises.
In addition to the need for formal arrangements, evidence must be retained to show how the amount of additional costs arising from homeworking have been calculated.
Further guidance on the exemption is provided by HMRC at EIM01472.
Deduction for income tax under s336 ITEPA 2003
The next step is to look at whether a deduction is available under the general rules for employment expenses in s336 ITEPA 2003.
These require the expense to have been incurred wholly, exclusively and necessarily in the performance of the duties of the employment. HMRC consider these tests to be met where:
- the duties that the employee performs at home are substantive duties of the employment. These are duties that an employee has to carry out and that represent all or part of the central duties of the employment, rather than say preparatory duties such as background reading in advance of a meeting
- those duties cannot be performed without the use of appropriate facilities and no such appropriate facilities are available to the employee on the employer’s premises (or the nature of the job requires the employee to live so far from the employer’s premises that it is unreasonable to expect them to travel to those premises on a daily basis)
- at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere
If any one of these tests is not met, for example because the employee has the ability to choose whether they work from home rather than from the employer’s premises, then a deduction is unlikely to be available in respect of the reimbursement of additional domestic costs.
HMRC provide some examples of how these tests are applied to various circumstances at EIM32790. You will need to apply these to your client’s specific circumstances.
For Croner-i Direct Tax In-Depth guidance on homeworking payments, see 437-550 and for homeworking expenses, see 456-600.
