The rise of remote and hybrid working models has transformed the way we work, offering increased flexibility and new opportunities for both employers and employees. However, these shifts also present unique tax implications that both parties need to address. Whether it’s ensuring compliance with HMRC regulations, claiming eligible tax reliefs or avoiding potential pitfalls, understanding the tax landscape is essential.
This guide explores the key tax considerations for remote workers and hybrid workforces, helping you navigate the complexities of these modern working arrangements.
How remote and hybrid working affects tax liabilities
Remote and hybrid work arrangements can impact tax obligations in several significant ways.
- Employment expenses: Workers may face additional costs, such as higher utility bills or the need for home office equipment. Understanding what can be claimed as a tax-deductible expense is crucial.
- Travel expenses: For hybrid workers, the classification of travel between home and the office or other workplaces can affect the tax treatment of these costs.
- Workplace designation: Determining whether an employee’s home qualifies as a permanent workplace directly influences the tax treatment of travel and subsistence expenses.
Let’s explore these in more detail.
Employment expenses for remote workers
Employees required to work from home may be eligible for tax relief on additional household costs. HMRC allows individuals to claim the following.
- A flat rate of £6 per week: This method requires no evidence of expenses.
- Exact costs incurred: Employees must provide proof, such as receipts, bills or contracts, to claim actual expenses.
It’s important to note that these reliefs apply only if homeworking is a job requirement, not a personal choice. For example, an employee who voluntarily works from home for convenience would not qualify for this tax relief.
Expenses that can be claimed are:
- increased utility costs (such as heating and electricity)
- business-related phone calls or internet usage (if not covered by the employer).
Expenses such as rent, council tax or general wear and tear on personal furniture are not eligible.
Travel expenses and hybrid working
For hybrid workers, travel expenses are treated differently depending on whether the trip is considered “ordinary commuting” or “business travel”.
Ordinary commuting
Travel between an employee’s home and their permanent workplace is classified as ordinary commuting, which is not eligible for tax relief. For most hybrid workers, the office remains the permanent workplace, meaning travel costs to and from the office are non-deductible.
Business travel
Trips to a temporary workplace or for specific business purposes may qualify for tax relief. Temporary workplaces are defined as locations where the employee works for less than 24 months. Examples of deductible travel expenses include:
- travel to client sites
- journeys for meetings or training sessions.
Since the rules can be complex, businesses and employees should consult HMRC guidance or a tax professional to ensure compliance.
Workplace designation and its impact on taxes
The classification of an employee’s home as a permanent or temporary workplace is pivotal in determining tax-relief eligibility for travel and subsistence expenses.
When home is the permanent workplace
If an employee is contractually required to work from home and performs substantive duties there, HMRC may consider the home a permanent workplace. In this scenario:
- travel to other locations for work purposes (such as client sites) may qualify for tax relief
- the employee must demonstrate that homeworking is essential to their role and not merely convenient.
When the office remains the permanent workplace
If homeworking is optional or part of a flexible arrangement, the office is likely to remain the permanent workplace. This means:
- travel between home and the office is classified as ordinary commuting and does not qualify for tax relief.
Employers should provide clear guidelines to help employees understand their specific tax obligations.
Tax considerations for employers
Remote and hybrid working also creates unique challenges and opportunities for employers. By understanding and addressing these considerations, businesses can support their employees while remaining compliant with HMRC regulations.
1. Reimbursing homeworking expenses
Employers can reimburse employees up to £6 per week tax-free for additional homeworking costs. Any amounts above this must be justified with evidence of actual costs incurred. Reimbursements are tax-free if:
- the employee is required to work from home
- the payment is solely to cover additional costs incurred due to homeworking.
2. Clear homeworking policies
Establishing clear policies for remote and hybrid working arrangements is vital to ensure compliance and set expectations. These policies should cover:
- eligibility criteria for expense reimbursements
- procedures for claiming business-related travel expenses
- conditions under which a home is considered a permanent workplace.
3. Record-keeping and compliance
Maintaining accurate records of expense claims and reimbursements is essential. Employers should document:
- agreements regarding homeworking arrangements
- evidence supporting the tax-free reimbursement of expenses
- details of travel expenses and their classification.
Thorough record-keeping not only ensures compliance but also simplifies the audit process if HMRC conducts a review.
Additional tax considerations for cross-border remote working
For employees working remotely from another country, tax implications become more complex. Cross-border arrangements can trigger:
- double taxation risks (being taxed in both the UK and the host country)
- employer obligations in the host country, such as social security contributions or local taxes.
Employers and employees should seek professional advice to navigate the tax rules applicable to international remote-working arrangements.
Leveraging professional support
Navigating the tax implications of remote and hybrid working can be challenging. Engaging with a tax professional ensures both employers and employees:
- maximise available tax reliefs
- remain compliant with HMRC regulations
- avoid costly mistakes or penalties.
For example, a tax adviser can help determine workplace designations, assess eligibility for expense claims and provide tailored guidance for cross-border workers.
Staying prepared for the future
The shift towards remote and hybrid working models has introduced new tax considerations that both employers and employees must address. Staying informed is critical for understanding the tax treatment of employment and travel expenses and ensuring compliance with HMRC rules.
Employers should focus on clear policies, accurate record-keeping and supporting their workforce, while employees must ensure they’re claiming the correct reliefs for homeworking and business travel. Consulting a tax professional can provide invaluable insights and peace of mind.
By proactively addressing these tax considerations, businesses and individuals can optimise their tax positions while enjoying the benefits of remote and hybrid working.
At HW Associates, we know a lot about taxes and remote workers. Get in touch for more advice.