COVID-19: taxable benefits and expenses

Government has updated its guidance on taxable expenses and benefits that are provided to employees by an employer during coronavirus pandemic. This guidance is related to income tax treatment on taxable expenses and benefits and national insurance contribution would be treated depending on the individual benefits or expenses.

Living accommodation expenses:

  • Your employee would be liable to pay tax on the cost of living accommodation that you provide to your employee during working at the permanent workplace due to coronavirus and you would be liable to report this cost or expenses through PAYE settlement agreement.
  • Your employee would be liable to pay tax on reimbursing lodging expenses that you provide to your employee. For example, you provide reimburse expenses to your employees if your employee cannot go back home due to coronavirus and stay at a hotel room.
  • If you provide your employee temporary living accommodation during working your employee at the temporary workplace due to coronavirus, your employee would be exempt to pay tax on this cost/expenses of temporary living accommodation that you provide to your employees.
  • In case your employee is superintendent of shelter house and dwelling at premises to be accessible as needs outside the ordinary working hours would be exempt to pay tax.

Reimbursement volunteer fuel cost and volunteer mileage cost on:

  • Using company cars by an employee:

If you refund a volunteer staff fuel cost using the advisory fuel rate or fund the cost of volunteer mileage to your employee undertaking volunteer work associated with coronavirus using the company car, these refunds would be counted as a benefit and your employee would be required to pay tax and national insurance contribution on these benefits by reporting through PAYE settlement agreement.

  • Using own car by an employee:

In case you refund the cost of mileage allowance up to the level of approved mileage allowance rate to your employees using their private cars to undertake volunteer work, this would be counted as coronavirus related benefit and will be taxable and should be reported through PAYE settlement agreement to pay tax and national insurance contribution due on these benefits.

The employees cannot claim for mileage allowance relief if they are getting paid lower than approved mileage allowance.

Reimburse expenses for transport:

If you refund or pay the cost of transport to your employee from workplace to home, this cost would be count as benefit and subject to taxable because the journey from workplace to home is considered as the private journey.

Exemption from tax applies to this benefit in certain conditions or if these 5 below conditions meet entirely:

  1. The employee needs to work later than expected and until at least 9 pm,
  2. This happens unpredictably,
  3. When the employee completions work either,
  • The public vehicle has halted or
  • It would not be suitable to anticipate that they should utilize the conveyance.
  1. The transport is by means of a taxi or comparable street transport.
  2. If you provide reimburse transport expense to your employees who normally travel in a car using car shared arrangements from home to workplace and due to unexpected and incredible circumstances or coronavirus, this is not possible for employees to travel in a car-sharing, in this situation, these reimburse expenses of transport would be exempt from tax.

Make sure the total number of exempt journeys should be up to 60 in a tax year.

If these conditions are not met, this free transport would be considered as a benefit and need to report through PAYE settlement agreement to pay tax on these subsidies transport.

Free or subsidized meal:

You don’t need to notify to HMRC and need to pay tax if:

  • you are providing your all staff generally free or subsidized meal at reasonable scale on business premises or workplace canteen
  • providing the meal voucher to staff to buy the meal who don’t get meals.

The free or subsidized meal would be taxable if large meal with a fine wine or not on reasonable is provided in the restaurant, hotel or outside the business premises and workplace canteen only to directors not to staff under a salary sacrifice or flexible benefit plans.

Your employee would be required to pay tax and national insurance contribution on receiving other earnings as

  • cash voucher to exchange for meal or cash,
  • cash allowance for meals
  • top-up payments to employee account for workplace food and drink using a card or PIN system.

Company car availability and unavailability:

Company car would be treated as a taxable benefit or available for private use if it is provided to an employee during the furlough period Unless;

  • Restricted the employee not to utilize the car,
  • Asked to take the photographic image of the mileage both before and after a period of furlough,
  • Physically unable to give back the car or car cannot be taken back from the employee.

If the agreement has abolished, car keys have been returned or employee has no access to car keys but the car is still in the possession of an employee or could not accrue due to coronavirus restrictions of movement, HMRC will treat the car as unavailable for private use and it would not be treated as a taxable benefit.

Employee company car ownership scheme:

An employee who is using employee company car ownership scheme including getting a loan from the third party to purchase a car needs to return the car to the third party towards the end of a loan time frame to evaluate its value as the final settlement of the loan.

If an employee is not able to return the car for its final evaluation to the third party due to coronavirus restrictions, would be liable to pay income tax on the outstanding loan amount.

However, to avoid paying income tax employee can arrange an extension with the third party if the loan period was less than 4 years and if the loan period is extended above 4 years, an employee has to pay income tax.

Salary sacrifice arrangements:

Lifestyle has changed due to coronavirus outbreak that leads to salary sacrifice arrangements to be reviewed and employee intends to change the salary sacrifice arrangements due to this pandemic. So, the Employer needs to include these changes in the terms and conditions of their employment. Rules on salary sacrifice arrangement are the same due to coronavirus.

Employment-related loan:

If an employer provides salary advance or employment-related loan with a value of less than £10,000 to an employee during the pandemic time in a tax year, it would be the tax-free loan.

Home office expenses:

If your employee is working from home during coronavirus pandemic and any expenses incurred by you on purchase of home office equipment would be non-taxable and job-related living accommodation under certain conditions would be tax-free or you and your employees would not be liable to pay tax on expenses that you incurred during working from home. Read our guide on tax relief on home office equipment to find which expenses are taxable or non-taxable during working from home due to coronavirus.

Reporting to HMRC taxable expenses and benefits:

You can report any taxable expenses and benefits associated with coronavirus to HMRC by your PAYE settlement agreement, your payroll or by P11D returns that need to be completed online by the deadline of 6 July 2020 or employers can also file their all P11D or P11D(b) returns through paper filing, if unable to file online.

If you need any assistance on your coronavirus related taxable expenses or benefits or on how to file your returns, you can contact our expert team of tax advisors with your any tax query that are expert in any tax-related matter whether it is employment, individual or business level.

Disclaimer: Please note the information in this blog above is for information only. It must not be used as advice to act upon and any specific questions should be discussed with one of our staff at Berkshire Accountants Limited.