HMRC urged to home in on hybrid and distance working headaches

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.”

Notes for editors

1. The Chartered Institute of Taxation (CIOT) was commenting in its response to the Office of Tax Simplification (OTS) call for evidence on Review of hybrid and distance working.

2. The Office of Tax Simplification (OTS) is the independent advisor to the Government on simplifying the UK tax system. The OTS undertakes formal reviews commissioned by the Chancellor, and own initiative reviews covering many of the issues facing the UK tax system. This is an own initiative review by the OTS. In July the OTS published a Scoping Note outlining its intention to look at hybrid and remote working. The OTS will publish a report of its findings in late 2022.

3. Traditional secondments typically involve placements from the home country employer to the overseas employer for fixed periods (e.g. one, two or more years).

4. During the pandemic the government introduced a time-limited exemption to deal with precisely this issue. This exemption applied from 16 March 2020 to 5 April 2022. It is unclear why this has now been withdrawn, given the increased prevalence of home and hybrid working.

5. In September’s Growth Plan the then-Chancellor Kwasi Kwarteng announced the Government’s intention to abolish the Office of tax Simplification (OTS), saying he would instead ‘set a mandate to the Treasury and HMRC to focus on simplifying the tax code’. CIOT President Susan Ball has written to the new Chancellor encouraging him to review the decision to abolish the OTS.