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Homeworking tax rules in UK need to be simpler, say experts

The UK government has been urged by tax experts to reform and clarify laws around homeworking, as they warned more people were being caught up in “complicated and inconsistent” rules.

Some 44 per cent of UK workers spent some or all of the time working from home between September 2022 and January 2023, according to data on Monday from the Office for National Statistics.

While comparable pre-coronavirus pandemic statistics are not available, only about 5 per cent of the workforce in 2019 said they mainly worked from home over the year.

“The rules and tax treatment for homeworking are surprisingly complex and some of the inconsistencies can be difficult to fathom,” said Helen Thornley, technical officer at the Association of Taxation Technicians, a professional body.

The calls for reform come as the trend towards hybrid working — where workers spend part of the week working from home and the rest in the office — looks set to last well beyond the peak of the pandemic.

More than half of Britons earning more than £50,000 told the ONS that they were hybrid workers, and under legislation progressing through parliament, employees will soon have the right to request flexible working arrangements from the first day of a new job.

But Sir Edward Troup, former executive chair of HM Revenue & Customs, the UK tax agency, said rules remained based on “19th-century concepts”, which favoured self-employed people, traditionally more likely to be homeworkers, because they were viewed to be taking more risk than others.

“A clear policy, based initially on achieving a neutral outcome should be the starting point,” he said, adding that “there is a policy choice here but currently there is no policy — it has grown ad hoc”.

One crucial concern among tax experts relates to the tax treatment of office equipment to be used at home, which depends on who pays for the items.

Thornley said the ATT was aware of “reports that for staff with flats in London, the typical office desk that an employer might look to supply to them just doesn’t fit. But they can’t go out and buy their own and claim it back from their employer — even if the employer is quite happy to pay — without a tax issue arising.”

Caroline Miskin, senior technical manager of the Institute of Chartered Accountants in England and Wales, said it made “no sense to have a different rule depending on who actually buys the equipment when the employer is bearing the cost anyway”. 

Specialists have also criticised the unfair application of tax deductibility for homeworkers’ bills. Anyone who works at home between two and five days a week is eligible for a £6 weekly payment tax-free from their employer. If the company does not pay the £6 allowance, the homeworker cannot claim the equivalent tax deduction from HMRC.

Meredith McCammond, technical officer at the Low Income Tax Reform Group, described the £6 allowance as “too low” and called on ministers to review how it could be applied on the basis of actual additional costs incurred through homeworking.

In areport last year, the Office of Tax Simplification, a statutory body, also found a lack of clarity around what travel can be tax deductible, with people increasingly working from “home offices”.

Unlike the UK, commuting costs in countries including France, the Netherlands, Denmark and New Zealand are partly or fully tax deductible. However, employees based from home and occasionally required to travel into the office can claim tax relief for their journeys.

“The government should clarify by way of policy and guidance the treatment of business travel and commuting for the hybrid working employee,” the OTS said. It added that a number of hybrid workers “suggested that they need the encouragement of tax relief to make the trip into the office”.

HM Treasury said: “Tax simplification is a priority for this government and we keep all taxes under review.”

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