With the dramatic shift towards working from home since March 2020, sparked by the COVID-19 pandemic, an interesting question has emerged around the tax implications for UK employees. As of January 2023, an astounding 44% of workers in the UK—that’s about 23.4 million people—are working from the comfort of their homes. Many companies have facilitated this transition by providing essential equipment, often including a computer. While this is typically a tax-deductible expense when the employee uses it in the office, what happens when they start working partially from the office and keep the home office equipment for personal use?

Ownership Matters

The tax implications hinge on who owns the equipment:

  • If the Employer Transfers Ownership to the Employee: Should the equipment’s ownership be transferred to the employee without any payment, a PAYE benefit in kind tax charge arises, calculated at least at the market value of the equipment at the date of transfer. Any payment by the employee towards the equipment reduces the tax charge. It’s vital to have documentation confirming this transfer.
  • If the Employer Retains Ownership: On the other hand, if the employer retains ownership while allowing the employee personal use, the PAYE benefit in kind tax charge is based on the ‘annual value’ of the equipment—20% of its market value when first available for personal use. Additionally, Class 1A NIC is charged on the value of the benefit. Ideally, the invoice should be in the name of the business, even if delivered to the employee’s home.

Interestingly, if the employee continues to work flexibly, splitting their time between home and office, no tax charge will arise from the personal use of the equipment, assuming such use is minimal. The employer has the discretion to determine the extent of permissible private use, which must be communicated clearly to the employee. Upon ending their contract, the employee must return the equipment.

Reimbursements and Reporting to HMRC

For employer reimbursements of equipment purchased by employees for company use, the usual tax relief rules apply, provided the employer retains the equipment. Employers must notify HMRC of any taxable expense or benefit either through the standard PAYE process or a PAYE Settlement Agreement (PSA). A PSA offers the advantage of delaying the determination of an expense or benefit’s taxability, consolidating tax and NIC payments for irregular employee expenses or benefits into a single annual payment.

Are you a UK business owner or employee navigating the tax implications of working from home? Uncertain about the tax charges related to home office equipment? Jon Davies Accountants is here to guide you through these complexities with friendly, expert advice. Our team is dedicated to helping UK entrepreneurs and small business owners like you understand and manage your finances effectively. Contact Jon or our team today for personalised support. Let’s ensure you’re making the most of your tax deductions and keeping your financial health in tip-top shape!

 

 
 
 
 
 
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