Tax rules for hybrid working under review

Employees are increasingly able to work from almost anywhere in the world. However, the Office of Tax Simplification (OTS) is examining the rules around tax as they apply to distance and hybrid working, both within the UK and globally.

We will find out what the OTS recommends in due course, but what can businesses look at in the meantime?

The tax rules on areas like travel and subsistence are a prime area to review, taking stock of where working practices have changed post-Covid. Particularly important is the concept of the ‘permanent workplace’, something that has specific meaning in tax law. It has a direct bearing on the allowability of travel expenses. 

If employees are working remotely or in a hybrid arrangement, where they work both on site and at home, special care is needed: tax relief for travel from home to the employer’s premises will be available only in very limited and specific circumstances. In most cases, HMRC will hold that the employer’s normal workplace is the permanent workplace. Where this is so, the ordinary commuting rules work to deny tax relief. 

The position regarding home working expenses and employer provided equipment is another area to check. There were a number of temporary changes, which applied specifically during the pandemic. Employers should now take the opportunity to engage with staff to make sure that expectations are set at a realistic level. 

The OTS is also looking at the increasing trend in cross-border working, where employees work overseas for employers based in the UK, or work in the UK for overseas employers. It notes: ‘These arrangements are different from traditional expatriate assignments, where individuals moved to a different country to work for a set period. Hybrid arrangements may typically involve an individual working in two or more countries, often in residential accommodation, where the location is chosen by the employee and not by the employer.’ 

Employers potentially need to deal with many different issues arising here. They range from where someone is considered resident for tax purposes, to consideration of what are called double tax treaties – treaties between the UK and other countries establishing how an individual is taxed. Areas like share schemes and pension contributions also require appropriate attention.

Whether your employees are internationally mobile or footloose within the UK, there’s a lot of complexity. We can help with advice tailored to the requirements of your business.

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