Should the tax rules be reformed to reflect new ways of working?

With many firms looking to adopt a hybrid model as lockdown restrictions lift, Tim Stovold explains why HMRC should consider tax relief on commuting to the office

Before the pandemic, employers that offered their staff the option of working from home for part of the week were very much the exception. As the economy emerges from lockdown and firms seek to recruit the best and brightest, flexible working arrangements will become as commonplace as season ticket loans or childcare vouchers.

According to the The future of work report, 72 per cent of employees want to work from home at least two days per week and 43 per cent at least three days. This chimes with employers’ plans to restructure their real estate and reduce expensive desk space. It will no longer be possible to host the entire employee population in the office – working from home will cease to be a choice out of convenience and will become a requirement of their employment. 

An employee’s home might become the place where the majority of their working time is spent, with visits to a traditional office becoming focused on briefings and collaborative sessions with colleagues. If this is what the future looks like, the tax system has some catching up to do. There are some positive aspects but some areas are in need of urgent reform. 

Most people will be aware of the £6 per week tax deduction that can be claimed via the HMRC website. This will generate a £62 tax refund for basic rate taxpayers and £125 for higher-rate taxpayers. There is also the temporary tax exemption allowing employers to purchase their employees’ desk and other home office equipment. However, even when a person spends most of their time working from home, and this is a condition of their employment, they will have a difficult time claiming tax relief for any travel expenses incurred travelling to their office.

Strangely, even though HMRC will accept that a person’s home can become a workplace, it still in most cases regards travel to the office as ordinary commuting – and not as tax-deductible travel. The reason for this anomaly is that, in the past, most home working arrangements have been driven by a choice made by the employee. It is also, of course, the individual’s decision where they choose to live and not a requirement of their employment.

In the coming age of hybrid working, the decision to treat home as a workplace is more likely to be imposed on employees by their employer. The fact that this arrangement may suit a majority of employees is a secondary point. 

Reform is needed for the business travel rules so that they recognise this shift. The cost of necessary travel to another workplace, such as the employer’s head office for required meetings, should be accepted as being tax deductible. 

At the moment, HMRC says: “Usually, we’ll only accept that working at home is an objective requirement of the job if the employee needs certain facilities to perform those duties, and those facilities are only practically available to the employee at their home. 

“We will not accept that working at home is an objective requirement of the job if the employer provides appropriate facilities in another location that could be practically used by the employee, or the employee works from home as a matter of choice.”

This approach is very restrictive. It should be sufficient that the employer requires the employee to work from home rather than the employee needing to work from home. HMRC should start gathering evidence on the impact of these new ways of working. Reforming the tax laws applicable to business travel would not be a concession but a recognition of the new reality.

Tim Stovold is head of tax at Moore Kingston Smith