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P11D tips – COVID-19 and benefits in kind

22 February 2021

Published by: Michael Hepburn, Senior Manager – Employment Tax

As the COVID-19 lockdown has changed the way that many of us work, there can, of course, be an impact on the benefits and staff support that employers provide. So what items will and will not need to be reported on P11Ds for 2020/21? 

Home working costs

Where employees work from home as part of a home working policy, an employer can pay an un-receipted allowance of up to £6 per week (£26 per month) from 6 April 2020 to cost the additional costs of working from home, where certain tests are met. Alternatively, HMRC has confirmed that employees may claim tax relief to the same value directly from HMRC whilst the current situation continues (see here). In either scenario, it is not necessary to record such qualifying payments on P11Ds. 

Home-working equipment 

There is a specific benefit in kind exemption which applies to ‘employer-provided’ supplies and services in the employee’s home. In order for the exemption to apply, there are two primary conditions which must be met:

  • The sole purpose for the provision is to enable the employees to perform the duties of their employment, and
  • Any private use by employees is insignificant.

Here, ‘employer-provided’ means the employer arranges and pays for the item (ie monitors, keyboards, desks and chairs, etc.). The equipment remains the property of the employer, and should subsequently be returned. However, if ownership is transferred to employees, a taxable benefit will arise and must be record on P11Ds (although the value of some second hand items may be minimal).

Ordinarily, where any items are purchased by employees and the cost is reimbursed by the employer, the reimbursement would not qualify for this exemption and would trigger a reportable benefit. However, in May 2020, the Treasury announced the introduction of a temporary tax and NIC exemption that will cover any home office equipment purchased by employees and reimbursed by employers as a result of the coronavirus pandemic. This measure applies retrospectively from 16th March 2020, and will continue until the end of the 2020/21 tax year.

To be eligible for this temporary exemption, the reimbursed expenditure must meet two conditions:

  • The equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and
  • The provision of the equipment would have been exempt from income tax under the existing exemption had it been provided directly to the employee.

Under this temporary exemption, a taxable benefit will not arise if the equipment is retained by the employee rather than being given to their employer.

Mobile phone costs

As employees will not have access to their work phone, they may have use their mobile phones more frequently during 2020/21. Where the mobile phone has been provided by the business, and the contract is between the employer and supplier, no benefit arises and there are no reporting obligations.

Where employees are using their personal mobile phone:

  • Where an employee is claiming for itemised business calls, texts and data only (and this is evidenced), the cost reimbursed is not taxable.
  • Where an employee is claiming for their fixed call plan (say £30 all-inclusive calls, data, etc.), the cost will always be taxable – through payroll.
  • Where an employee is claiming for costs over and above the fixed call plan, if they can demonstrate that the additional cost relates to 100% business use, the cost reimbursed is not taxable
  • Where there is no justification for the costs being claimed, and so the business use and personal use cannot be determined, the total claim will be taxable through payroll.

Broadband 

If an employee needs a broadband connection installed as a result of needing to work from home during the pandemic, and the business arranges this, then the costs can be tax free and not reportable on P11Ds. 

For employees that have an existing broadband connection, if it is not possible to split the business use and personal use, any reimbursement will give rise to a benefit in kind, and the whole payment will be taxable. As with mobile phones, if the employee can split their bill and claim only for the business use element e.g. additional data requirements, etc., a reimbursement can be made with no tax implications.

Unused company cars

HMRC originally took a firm line on cars, saying that a benefit in kind continues as they remain available for private use during the COVID-19 lockdown if they are still with the employee (regardless of whether or not the car is actually used). However, during the Coronavirus pandemic, where a hire contract has expired, HMRC will accept that the benefit ceases immediately if the keys are returned to the employer/hire company (at the employer’s instruction) so that it cannot be driven.  

Employer-provided COVID-19 testing for employees

The costs of such tests are not to be treated as a benefit liable to tax and NIC. Similarly, the cost of PPE provided to employees relating to their work is non-taxable and need not be reported on P11Ds. In contrast, where employers reimburse the costs of a normal flu vaccination, this is a benefit in kind that must be reported (if not dealt with by way of a PAYE settlement agreement). 

Travel and subsistence expenses - temporary workplaces

HMRC has advised that if an employee was furloughed when they were travelling to a temporary workplace, the period of furlough is classed as a period of continuous work. A period of working from home will also be classed as a period of continuous work – ie the clock continues to run for the 24 month test.

However, the workplace stops being temporary from the date that attendance there is expected to be more than 24 months. Tax and National Insurance contributions will then become liable and reportable on any payments of travel and subsistence expenses.

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