Work life has changed for the vast majority of people since the Coronavirus outbreak. Below we explain everything you need to know about taxable benefits and expenses during the pandemic and how to report them to HMRC.
Please note that this guidance is about Income Tax treatment only. National Insurance contributions treatment may vary depending on the individual benefit or expense.
Living accommodation
If you’re providing living accommodation for an employee working at a permanent workplace because of Coronavirus, the cost will be taxable.
If an exemption does apply – for example, your employee is a warden of a sheltered housing scheme and is living at the premises where they’re on call outside normal working hours, there will not be a tax charge.
If your employee is working at a temporary workplace and has been doing so for less than 24 months, tax relief is available if they’ve been provided with living accommodation when working at a temporary workplace because of Coronavirus.
You should report this cost on a P11D as normal, even if the value of the benefit is nil.
If your employee can’t return home because of Coronavirus, you may agree to reimburse their subsistence expenses and lodging expenses (such as a hotel). This is taxable and can be reported through a PAYE Settlement Agreement.
Volunteer fuel and mileage costs
Employees using a company car
You may agree to refund fuel costs (using the Advisory Fuel Rates) for employees carrying out volunteer work related to Coronavirus.
These refunds are a benefit and you should settle any tax and National Insurance contributions on your employee’s behalf by reporting through a PAYE Settlement Agreement.
You may also agree to fund the cost of fuel for volunteer mileage related to coronavirus. Volunteer mileage shouldn’t be considered for the purposes of the car fuel benefit charge for company cars.
Any tax and National Insurance contributions which are due should be reported through a PAYE Settlement Agreement as a Coronavirus related benefit based on the appropriate advisory fuel rate for the volunteer mileage.
Employees using a private car
If your employee uses their own car to volunteer, you can refund them up to the level of the approved mileage allowance rate. This is taxable and should be reported through a PAYE Settlement Agreement as a Coronavirus related benefit.
If you pay your employee less than the approved mileage allowance rate, they can’t claim mileage allowance relief.
Transportation costs
If you pay or refund your employee the cost of transport from work to home, this is considered to be a benefit. This is because journeys between an employee’s workplace and home are private journeys.
In some circumstances, there’s an exemption from paying tax on this benefit. For this to happen, all of the following four conditions must be met:
- The employee has to work later than usual and until at least 9pm.
- This must happen irregularly.
- By the time the employee finishes work, either:
- Public transport has stopped.
- It would not be reasonable to expect them to use public transport.
- The transport is by taxi or similar road transport.
Your employees may regularly travel to work in a car with one or more other employees using a car-share arrangement. If this arrangement has stopped because of Coronavirus, and you provide transport or reimbursement of the expense of transport from your employees’ home to workplace, this may also be exempt.
The total number of exempt journeys cannot exceed 60 in a tax year. This is a single limit which applies to late-night journeys and the failure of car-sharing arrangements, together.
If these requirements aren’t met, free or subsidised transport is taxable and should be reported through a PAYE Settlement Agreement as a Coronavirus related benefit.
Free or subsidised meals
You don’t have to report anything to HMRC or pay tax and National Insurance if you offer all your employees:
- Free or subsidised meals of a reasonable value at a workplace canteen.
- Vouchers that cover the cost of buying these meals.
Free or subsidised meals that are not exempt include meals that are:
- Not on a reasonable scale. For example, elaborate meals with fine wines.
- Provided off-site but not at a canteen. For example, at a restaurant.
- Not available to all staff. For example, meals for directors only.
- Provided under salary sacrifice or flexible remuneration arrangements (also known as ‘flexible benefit plans’).
If you provide your employees with vouchers for meals outside the workplace, you can find out how to report this to HMRC here.
If you provide other vouchers, cash allowances or employee accounts, this counts as earnings. For example:
- Vouchers that can be exchanged for either food or cash.
- Cash allowances for meals.
- Top-up payments to an employee’s account for workplace food and drink using a card or PIN system.
For these costs, you must:
- Add the amount to your employee’s other earnings.
- Deduct and pay PAYE tax and Class 1 National Insurance through payroll.
If the meals or vouchers you provide are not exempt, you need to report them to HMRC and deduct and pay tax and National Insurance on the costs.
Company car ‘availability’
If your employee has been furloughed or is working from home because of Coronavirus, and you provide them with a company car which they still have, you should treat the car as being made ‘available for private use’ even if your employee is:
- Instructed not to use the car.
- Asked to take and keep a photographic image of the mileage both before and after a period of furlough.
- Unable to physically to return the car or the car cannot be collected from the employee.
Where restrictions on movement apply because of Coronavirus and prevents the car from being handed back or collected, HMRC will accept that a company car is unavailable in the following circumstances:
- Where the contract has terminated – from the date that the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer.
- Where the contract has not been terminated – after 30 consecutive days from the date that the car keys (including tabs or fobs) are returned to the employer or to a third party as instructed by the employer.
The return of keys means that a car cannot be driven in any circumstances even if it’s still in the possession of your employee.
It has also been recognised that following relaxation of Coronavirus restrictions, it may take some time to collect cars where contracts have been terminated. As long as your employee continues to have no access to the keys until the car has been collected, HMRC will still regard the car as being unavailable.
Employee Car Ownership Schemes (ECOS)
Employees who have used ECOS arrangements, including a loan from a third party to purchase a car, may have to return the car at the end of the loan period for its value to be assessed as a final settlement of the loan.
If your employee hasn’t been able to return the car to the dealership or factory for its assessment because of COVID-19, there may be an income tax charge on the amount of the loan still owing.
If the loan period was less than four years, it may be possible for your employee to arrange an extension with the loan provider for a few more months. This will cover the period until the car can be returned and the loan settled.
If this is done, HMRC will accept that the arrangements do not give rise to the Income Tax charge. If however, the loan is extended beyond four years, an Income Tax charge will arise.
Salary sacrifice
Changes in circumstances because of Coronavirus are accepted as a lifestyle change which allows salary sacrifice arrangements to be reviewed. If your employee chooses to amend a salary sacrifice arrangement because of Coronavirus, you need to make sure the change is reflected in the terms and conditions of their employment.
The rules on salary sacrifice were amended in April 2017 and for most arrangements entered into before 6 April 2017, new benefit valuation rules apply.
The transitional rules apply for a longer period where the benefit is:
- The provision of a car with emissions of more than 75g CO2/km.
- Provided living accommodation.
- The payment of school fees.
The new rules won’t apply to these types of benefits until 6 April 2021, unless employees vary or renew their arrangements.
An arrangement is not regarded as being varied if the variation of the arrangement is only directly in connection with Coronavirus.
Employer provided loans
A salary advance or loan to help your employee at a time of hardship counts as an employment-related loan. Loans provided with a value less than £10,000 in a tax year are non-taxable.
Employees working from home
You can check which expenses are taxable if your employee works from home because of Coronavirus on the gov.uk website.
How to report to HMRC
Any expenses or benefits related to Coronavirus can be reported on your PAYE Settlement Agreement.
If you’re currently payrolling benefits in kind, you may continue to report expenses and benefits through your payroll as long as you’ve registered with HMRC before the start of the tax year (6 April). You may also continue to report expenses and benefits through P11D returns.
HMRC expects all P11D and P11D(b) returns to be completed online by 6 July 2020 for the tax year 2019-20. Paper options are available for employers unable to file online.
For more information about employee benefits and expenses during COVID-19, please head to the gov.uk website. Alternatively, don’t hesitate to get in touch with PKB and we’ll be more than happy to help.
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