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Business Services  •  Business Tax

How could hybrid working impact expense claims and P11D reporting?

By RJP LLP on 28 July 2022

Hybrid working is now a common workplace policy across the UK and means employees get the chance to flex working from home with a few days spent at the office each week. It sounds ideal but this working routine has created some complications when it comes to reimbursing travel expenses and P11D reporting.

The issues arise over the definitions of permanent vs temporary workplaces which is being written into many employees’ new hybrid working contracts.

Here is where potential problems are arising:

When staff are paid for allowable business out of pocket expenses and nothing more, these costs are fully tax-deductible. If employers pay a higher amount than the actual cost incurred, which many employers chose to do, the additional value becomes a benefit in kind and should be included in the payroll reporting. It will potentially become a problem when P11D forms need to be completed.

When an employee has a hybrid working arrangement, their permanent workplace must be correctly determined to allow them to claim travel and other subsistence costs as tax free expenses. Otherwise, they risk being charged to tax on a benefit in kind. In the eyes of HMRC, a journey from your home to a permanent workplace is not tax deductible, but a journey from home to a temporary workplace is tax free.

Therefore, if an employer wishes to offer travel costs to an employee within their contractual terms, the amounts paid will only be tax free if the employee’s permanent workplace is their home, within the definition applied by HMRC. If it is not, the payments must be taxed within the employee’s payroll. HMRC will not accept that a workplace is a temporary location if the worker is based at the office for a set number of days every week.

The only way an office can legitimately be deemed to be a temporary workplace for these purposes is if an employee is able to only come into the office very occasionally, because for example they have a regional responsibility.

For example, a sales rep who works from home and has no requirement to come to an office is likely to have their home as their permanent workplace, as is a person whose employment contract documents that they work from home every day but will attend occasional meetings in the office.

If your company is creating hybrid working rules for employees, it is sensible to be aware of these distinctions if you wish to employees to be able to claim out of pocket travel expenses which are fully tax deductible. New employment contracts which clearly define the permanent workplace and the extent to which a person is expected in the office need to be in place, and fall within HMRC’s definitions. This will help to avoid any unexpected tax bills and mistakes when it comes to P11D reporting.

In cases where working arrangements are more fluid and employees choose which days they visit the office, reimbursed travel costs are likely to be treated as a taxable benefit.

If you would like advice on business tax and payroll management, please get in touch via partners@rjp.co.uk

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Hybrid working is now a common workplace policy across the UK and means employees get the chance to flex working from home with a few days spent at the office each week. It sounds ideal but this working routine has created some complications when it comes to reimbursing travel expenses and P11D reporting.

The issues arise over the definitions of permanent vs temporary workplaces which is being written into many employees’ new hybrid working contracts.

Here is where potential problems are arising:

When staff are paid for allowable business out of pocket expenses and nothing more, these costs are fully tax-deductible. If employers pay a higher amount than the actual cost incurred, which many employers chose to do, the additional value becomes a benefit in kind and should be included in the payroll reporting. It will potentially become a problem when P11D forms need to be completed.

When an employee has a hybrid working arrangement, their permanent workplace must be correctly determined to allow them to claim travel and other subsistence costs as tax free expenses. Otherwise, they risk being charged to tax on a benefit in kind. In the eyes of HMRC, a journey from your home to a permanent workplace is not tax deductible, but a journey from home to a temporary workplace is tax free.

Therefore, if an employer wishes to offer travel costs to an employee within their contractual terms, the amounts paid will only be tax free if the employee’s permanent workplace is their home, within the definition applied by HMRC. If it is not, the payments must be taxed within the employee’s payroll. HMRC will not accept that a workplace is a temporary location if the worker is based at the office for a set number of days every week.

The only way an office can legitimately be deemed to be a temporary workplace for these purposes is if an employee is able to only come into the office very occasionally, because for example they have a regional responsibility.

For example, a sales rep who works from home and has no requirement to come to an office is likely to have their home as their permanent workplace, as is a person whose employment contract documents that they work from home every day but will attend occasional meetings in the office.

If your company is creating hybrid working rules for employees, it is sensible to be aware of these distinctions if you wish to employees to be able to claim out of pocket travel expenses which are fully tax deductible. New employment contracts which clearly define the permanent workplace and the extent to which a person is expected in the office need to be in place, and fall within HMRC’s definitions. This will help to avoid any unexpected tax bills and mistakes when it comes to P11D reporting.

In cases where working arrangements are more fluid and employees choose which days they visit the office, reimbursed travel costs are likely to be treated as a taxable benefit.

If you would like advice on business tax and payroll management, please get in touch via partners@rjp.co.uk