HMRC urged to home in on hybrid and distance working headaches

HMRC should be encouraged to do more to help employers and employees manage the post-pandemic trend of hybrid and distance working, says the Chartered Institute of Taxation (CIOT).
The CIOT sets out its views1 in a response to the Office of Tax Simplification’s (OTS) call for evidence2 reviewing the emerging wider trends in hybrid and distance working. The CIOT recommends improving guidance and using technology to speed up HMRC decision-making so that employers can account for the correct taxes from the outset.

 

Colin Ben-Nathan, Chair of CIOT’s Employment Taxes Committee, said:

 

“It is increasingly common for employees to want to work more flexibly and to choose where they work from, whether in-country or abroad. But this leads to both the employer and the employee facing tax compliance headaches around where tax is due and what deductions may be available.

 

“We would encourage HMRC to provide more tailored guidance for employers and employees on hybrid and distance working so that they can more readily understand their tax and social security position, particularly where cross-border working is involved.”

 

CIOT members report an increasing demand from employees in a wide range of business sectors to perform work remotely. This may either involve working from home (in the UK) for all or part of the time, or increasingly working cross-border for varying periods of time. Both scenarios can raise significant tax issues, and in a cross-border context the issues are different from those that arise in relation to longer term secondments.3

 

Colin Ben-Nathan added:

 

“For internationally mobile employees, we urge HMRC to make better use of technology to auto-process applications and directions it receives from employers. For example, in respect of ‘Section 690 agreements’, which in certain circumstances permit an employer to operate PAYE only on the portion of an employee’s earnings that represent the work they do in the UK. At the moment processing these applications takes far too long. But we think use of twenty-first century technology should speed things up, and indeed in more straightforward cases the system should auto-approve applications by return. This will then allow HMRC’s limited resources to be concentrated on more complex cases.”

 

The CIOT also comments on tax complications that can arise in relation to employees based in the UK who work from their home here rather than the office, or where hybrid home/office working applies.   

 

Employers want to ensure that they are compliant with expenses and benefits-in-kind tax rules, but these rules give rise to some challenges because they have not been framed with home and hybrid working in mind says the CIOT.

 

For example, where an employee works from home the employer will generally want to provide the equipment necessary to enable the employee to perform their duties. And indeed, where it does so then such provision is exempt from tax. However, it is often more practical for the employee to directly purchase the equipment themselves and be reimbursed by their employer. But, under current legislation, the reimbursement is then taxable.4

 

Colin Ben-Nathan said:

 

“We suggest that the distinction between ‘employer pays’ and ‘employer reimburses’ is removed so that businesses can arrange for employees to receive the equipment they need to perform their duties in whichever way works best for that business and its employees without having to worry about the method of acquiring the equipment.”