Policy paper

Income Tax and National Insurance contributions: exemption for home-office expenses

Updated 6 July 2021

Who is likely to be affected

Employees who are working from home due to coronavirus (COVID-19), and employers who encourage their staff to purchase their own home-office equipment and reimburse the expense.

General description of the measure

This measure will create a temporary Income Tax and Class 1 National Insurance contributions 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 coronavirus, including a laptop, desk or necessary computer accessories.

The exemption will ensure that employees receive the full reimbursement free from tax and Class 1 National Insurance contributions and will apply from the day after the regulations come into force until the end of the tax year 2020 to 2021.

Policy objective

This measure is designed to minimise the burdens on employers, and employees who are required to work from home due to coronavirus.

The exemption will mean that employees can purchase the office equipment necessary for them to work from home without worrying about the tax and National Insurance contributions consequences, and employers will no longer need to report the reimbursed expense which would normally be liable to tax and National Insurance contributions.

This is to 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 individuals working from home and therefore meet the government’s aims in suppressing 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 have effect from 11 June 2020 until the end of the tax year 2020 to 2021.

HMRC will exercise its collection and management discretion and will not collect tax and National Insurance contributions due on any reimbursed payments made from 16 March 2020 until the regulations take effect, provided the relevant conditions set out in the legislation are met (see below).

Current law

An existing tax exemption under section 316 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA03) applies where an employer provides home office equipment directly and retains ownership of that equipment, and the employee’s private use is not significant. This exemption does not extend to employer reimbursements for employee expenditure on home- office equipment.

Tax relief is also available under section 336 ITEPA03 where an employee incurs a cost that is ‘wholly, exclusively and necessarily in the performance of the duties of their employment’. The corresponding National Insurance contributions 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.

Proposed revisions

Due to coronavirus, employees are encouraged to work from home wherever possible and to enable this, many employers are instructing staff to purchase their own home-office equipment, with the employer reimbursing this cost.

To provide effective support for employees in the current situation, a new exemption will be introduced under section 210 ITEPA03 (power to exempt minor benefits) and section 3(2) and (3) Social Security Contributions and Benefits Act 1992 and Social Security Contributions and Benefits (Northern Ireland) Act 1992 to ensure employer reimbursements for the cost of home-office equipment expenses are exempt from tax and National Insurance contributions.

For the expenditure to be eligible for relief, it must meet the following 2 conditions:

• that equipment is obtained for the sole purpose of enabling the employee 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 required by section 210(2) ITEPA 2003, 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 exemption is a temporary measure and will apply from the day after the regulations come into force until the end of the tax year 2020 to 2021.

Summary of impacts

Exchequer impact (£m)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
Empty	Empty	Empty	Empty	Empty	Empty

The Office for Budget Responsibility has included the impact of this measure in its forecast at Budget 2021.

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 National Insurance contributions 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 proposal 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 National Insurance contributions 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 ongoing costs.

There will be one-off savings 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 have 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, contact the employment income policy team by email: employmentincome.policy@hmrc.gov.uk.

Declaration

The Rt Hon Jesse Norman MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.