Tax treatment of expenses and benefits during COVID-19
The Government has updated its guidance on taxable expenses and benefits when they are paid to employees during the Coronavirus crisis and how employers should report them to HM Revenue & Customs (HMRC).
The new guidance provided relates to income tax treatment only and not National Insurance Contributions, which may vary depending on the individual benefit or expense.
To help you understand how these changes may affect how your business provides and reports benefits and expenses, we have summarised the main points below:
If you provide living accommodation for an employee working at a permanent workplace because of Coronavirus, the cost remains taxable, unless an exemption applies, such as where an employee is a warden of a sheltered housing scheme and is living at the premise and they are on-call outside normal working hours.
However, tax relief may be available for your employees who are provided with living accommodation when working at a temporary workplace because of Coronavirus.
You should report the cost of providing the accommodation on a P11D form, even where the value of the benefit is nil.
Where an employee is unable to return home because of Coronavirus you may agree to reimburse their subsistence expenses and lodging expenses. These are taxable and can be reported through a PAYE Settlement Agreement.
If you are supporting employees to undertake volunteer work you can agree to refund fuel costs or fund the costs of volunteer mileage.
If you are refunding fuel costs for an employee that is using a company vehicle for volunteering you can use the current Advisory Fuel Rate for that vehicle.
Any refunds are considered a benefit and you can settle any tax and National Insurance Contributions on your employee’s behalf by reporting through a PAYE Settlement Agreement.
You can also agree to fund the cost of fuel for volunteer mileage related to Coronavirus. Volunteer mileage should not be taken into account for the car fuel benefit charge for company cars.
Again, any tax and National Insurance Contributions must be reported through a PAYE Settlement Agreement as a Coronavirus related benefit.
You can also refund mileage costs where an employee uses their own car to volunteer 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 cannot claim mileage allowance relief.
Where you agree to pay for, or refund, an employee’s cost of transport to and from work, this is considered to be a benefit as it is a private journey.
However, there is an exemption from paying tax on this benefit if all of the following conditions are met:
- the employee has to work later than usual and until at least 9pm
- this happens 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.
Where car sharing agreements have had to stop because of the current crisis and you provide transport or reimbursement of the expense of transport from your employee’s home to the workplace, this may also be exempt.
Please be aware that the total number of exempt journeys cannot exceed 60 in a tax year.
Where these requirements are not met, free or subsidised transport is taxable and should be reported through a PAYE Settlement Agreement.
You do not have to report the supply of meals to your employees 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.
However, this does not cover 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 a salary sacrifice or flexible remuneration arrangement.
If you provide cash allowances or employee accounts, this counts as earnings and as such 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.
HMRC has confirmed that where an employee is furloughed or working from home due to the pandemic, and owns a company car, it should be treated as being made ‘available for private use’ during this period even if your employee is:
- instructed to not 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.
The return of keys means that a car cannot be driven in any circumstances even if it is still in the possession of your employee.
HMRC understands that the Coronavirus restrictions mean it may take some time to collect cars where contracts have been terminated.
As long as an employee cannot access the keys until the car is collected from them, HMRC will still regard the car as being unavailable.
Employee Car Ownership Schemes (ECOS)
Employees using an ECOS arrangement, including loans from third parties, may be required to return the vehicle at the end of the loan period for its value to be assessed as a final settlement of the loan.
This may not be possible due to the Coronavirus restrictions and there may, therefore, be an income tax charge on the amount of the loan still outstanding.
If the loan period was less than four years, it may be possible to arrange an extension with the loan provider.
If this is done, HMRC will accept that the arrangements do not give rise to the income tax charge. However, where the loan is extended beyond four years, an income tax charge will arise.
HMRC has confirmed that the Coronavirus pandemic may lead to an acceptable lifestyle change that allows salary sacrifice arrangements to be reviewed.
If you or your employee wishes to amend a salary sacrifice arrangement because of the current situation, you must make sure the change is reflected in the terms and conditions of their employment.
Loans made to help an employee with hardship during the pandemic counts as an employment-related loan. However, loans provided with a value of less than £10,000 in a tax year are non-taxable.
Reporting expenses and benefits to HMRC
Coronavirus-related expenses or benefits can be reported via a PAYE Settlement Agreement. Where you are already payrolling benefits in kind you can continue to report expenses and benefits through your payroll as long as you registered with HMRC before the start of the current tax year.
Employers can also report expenses and benefits through P11D returns. These returns must be completed online by 6 July 2020 for the tax year 2019-20. HMRC has confirmed that paper options are available for employers that are unable to file online.
Here to Help
If you need advice or support with benefits and expenses during this crisis, please speak to our team.
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