Policy paper

Extension to the temporary Income Tax and National Insurance Contribution exemption for home-office expenses

Published 3 March 2021

Who is likely to be affected

Employees who are working from home due to the coronavirus outbreak, and employers who encourage their staff to purchase their own home office equipment to enable them to work from home as a result of the outbreak and reimburse the expense.

General description of the measure

This measure will extend the temporary Income Tax and Class 1 National Insurance contributions (NICs) exemption for employer reimbursed expenses that cover the cost of relevant home-office equipment.

Home office equipment is the equipment deemed necessary for the employee to work from home as a result of the coronavirus outbreak, and can for example include a laptop, a desk or necessary computer accessories.

The exemption will ensure that employees receive the full reimbursement free from Income Tax and Class 1 NICs.

The exemption was due to end on 5 April 2021 but will now be extended to have effect until 5 April 2022 considering the ongoing impact of the outbreak.

Policy objective

The government’s coronavirus restrictions have required individuals to work from home where possible.

This measure is designed to minimise the burdens on employers, and employees who are required to work from home due to coronavirus. The extension of the Income Tax exemption and NICs disregard will mean that employees can continue to purchase the office equipment necessary for them to work from home as per government guidelines without worrying about the Income Tax and NICs consequences, and employers will continue not to be required to report the reimbursed expense which would normally be liable to Income Tax and NICs. This will make it easier for employees to gain access to equipment and remain productive as they work from home.

Background to the measure

The government is committed to supporting employers and employees through the coronavirus outbreak. This measure will support employees working from home and therefore help to meet the government’s aims to supress the spread of coronavirus.

No consultation has been held as this is a minor and temporary change which is wholly relieving.

Detailed proposal

Operative date

This measure will extend the end date of the current exemption from the end of the tax year 2020 to 2021 to the end of the tax year 2021 to 2022.

Current law

An existing tax exemption under section 316 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA03) applies where an employer provides supplies (such as home office equipment) directly to the employee and retains ownership of those supplies, and the employee’s private use is not significant.

This exemption does not extend to employer reimbursements for employee expenditure on home office equipment as it only applies when the supplies are provided by the employer. It has been more difficult for employers to provide equipment directly during the coronavirus outbreak.

A deduction from earnings is also available under section 336 ITEPA03 where an employee incurs a cost in respect of an amount that is “wholly, exclusively and necessarily in the performance of the duties of their employment”. The corresponding NICs disregard is contained within schedule 3 of the Social Security (Contributions) Regulations 2001.

However, the current rules mean that where an employee buys their own home office equipment and is reimbursed by their employer, they will currently not be entitled to tax relief. This is because the expense incurred puts the employee in a position to perform their duties and is therefore not incurred in performance of their duties.

This principle applies to the tax treatment of employee expenses generally.

To provide effective support for employees in the current situation, S.I. 2020/524 created an exemption from a charge to tax under Chapter 10 of Part 3 of ITEPA in respect of expenses reimbursed to employees for the purchase of home office equipment in the circumstances outlined above.

This legislation was introduced under section 210 ITEPA03 (power to exempt minor benefits). S.I. 2020/525, which was made under section 3(2) and (3) of the Social Security Contributions and Benefits Act 1992, introduced a corresponding Class 1 NICs disregard on the same amounts. This legislation ensures that employer reimbursements for the cost of home office equipment expenses are exempt from Income Tax and NICs.

For the expenditure to be exempt from Income Tax and disregarded for NICs, it must meet the following two conditions:

• that equipment is obtained by the employee for the sole purpose of enabling them to work from home as a result of the coronavirus outbreak
• the provision of the equipment would have been exempt from Income Tax under section 316 of ITEPA if it had been provided directly to the employee by or on behalf of the employer

As the tax exemption was made under section 210 ITEPA, and as required by section 210(2), the exemption will be conditional on the benefit of any reimbursement in respect of home office equipment expenses being made available to all of an employer’s employees generally on similar terms.

The current tax exemption and NICs disregard are a temporary measure and apply until the end of the tax year 2020 to 2021.

Proposed revisions

In light of the continuing impacts of the coronavirus outbreak, the Income Tax exemption and NICs disregard will be extended to cover the tax year 2021 to 2022. This will require new secondary legislation.

Summary of impacts

Exchequer impact (£m)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
-	-105	-5	Negligible	Negligible	Negligible

These figures are set out in Table 2.1 of Budget 2021 as a package of measures called “COVID-19: HMRC exemptions” and have been certified by the Office for Budget Responsibility.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This proposal is expected to have a positive impact on employees through the provision of tax and NICs relief on their reimbursed employee expenses when purchasing home office equipment.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a positive impact on businesses and civil society organisations who have employees that purchase home office equipment as their employees will not have to pay tax and NICs on their reimbursed expenses for the 2020 to 2021 tax year.

The administrative burden on these businesses and civil society organisations is expected to be negligible. There will be a one-off cost in the form of familiarisation with the change.

There are not expected to be any continuing costs. There will be a one-off saving from not having to report information on reimbursed expenses for this year.

Customer experience is expected to stay broadly the same as there is no significant change to business processes.

Operational impact (£m) (HMRC or other)

There will be negligible operational impact to HMRC for this change.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the employment income policy team by email: employmentincome.policy@hmrc.gov.uk.