Jet Accountancy

The Covid-19 pandemic forced large numbers of employees to work from home for the first time. Having made the transition to home working, post pandemic, many employees have continued to work from home some or all of the time.

Household expenses

Employees who work from home may incur costs as a result, such as increased household bills. The tax legislation allows employers to make a tax-free payment of £6 per week (£26 per month) to employees who work from home at least some of the time to help them meet the costs. The payment can be made tax-free regardless of whether the employee works from home through choice.

If the employer does not contribute towards the costs of additional household expenses, the employee may be able to claim tax relief. During the Covid-19 pandemic, the conditions were relaxed and employees who were required to work from home during the pandemic were able to make a claim of £6 per week for 2020/21 and 2021/22 for the full tax year (even if they returned to the office for some of the year). However, the easement came to an end on 5 April 2022, and for 2022/23 onwards relief is only available where the employee is required to work from home (either by the employer or the nature of the work), but not where the employee has the option to work at home or at the employer’s premises but chooses to work from home.

Hybrid working arrangements are attractive because of the flexibility that they offer. However, the choice element will limit to ability to claim a deduction for household expenses. Requiring the employee to work from home on, say, one specified day of the week will open the door to a claim.

Homeworking equipment

Where an employee works from home, depending on the nature of their job, they may need equipment to enable them to do so. Where the employer provides homeworking equipment, no tax liability arises in respect of that equipment.

During the Covid-19 pandemic, the rules were relaxed so that where an employee purchased homeworking equipment, the cost of which was later reimbursed by the employer, the reimbursement was not taxed. If the employer did not reimburse the cost, the employee could claim a tax deduction.

However, this easement ended on 5 April 2022. The strict statutory rules now apply, and as employees are not able to claim a deduction for capital expenditure (such as the cost of a computer), where this cost is reimbursed by the employer, the reimbursement will be taxable.

However, a deduction is allowed for revenue expenses wholly, necessarily and exclusively incurred in undertaking the employment duties, and any reimbursement of those costs can be made tax-free.

The High Income Child Benefit Charge (HICBC) is a tax charge that claws back payments of child benefit where the recipient or the recipient’s partner has income of at least £50,000 per year. Where both the recipient and their partner have income of this level, the charge is levied on the one with the higher income. The scope of the charge may mean that it falls on someone who did not receive the benefit and who is not a biological or adoptive parent of the child/children in respect of which the benefit was paid.

For 2022/23, child benefit is payable at the rate of £21.20 for the eldest child and at the rate of £14.45 per week for subsequent children.

The HICBC applies where the recipient of the benefit or their partner has ‘adjusted net income’ of at least £50,000 a year. This is taxable income before personal allowances, but after gift aid and pension payments.

The HICB charge claws back 1% of the child benefit paid for every £100 by which adjusted net income exceeds £50,000. Where adjusted net income is £60,000 or above, the HICBC is equal to the child benefit paid for the tax year.

Basic rate taxpayers and HICBC

Despite its name, a person can be a basic rate taxpayer and still fall within the scope of the HICBC.

For 2022/23, a person in receipt of the standard personal allowance of £12,570 with no adjustments will not pay higher rate tax until their income exceeds £50,270. However, the HICBC bites where income exceeds £50,000. A person with income of £50,270 in receipt of child benefit will face a HICBC of 2.7% of their child benefit, despite being a basic rate taxpayer.

Pay the charge

Where the charge applies, the person liable for the charge must complete a self-assessment tax return and pay the charge, with any other tax and National Insurance due under self-assessment, by 31 January after the end of the tax year to which the charge relates.

Stop the benefit

Where income is at least equal to £60,000, the HICBC claws back all the child benefit received in the tax year. Consequently, there is no net benefit to receiving the child benefit, and there is the added hassle of completing the relevant section of the self-assessment tax return and paying the tax. As a result, it may be preferable not to receive the child benefit in the first place.

The recipient can elect to stop receiving child benefit by completing the online form or contacting the Child Benefit Office by phone or by post.

However, child benefit paid for a child under the age of 12 earns National Insurance credits that allow the year to be treated as a qualifying year for state benefit purposes. Consequently, anyone entitled to child benefit should still register for the benefit, even if they elect not to receive it, in order to benefit from the associated National Insurance credits. This is particularly important where the recipient does not pay sufficient National Insurance for the year to be a qualifying year, but their partner would be liable for the charge if the child benefit is paid.

Unincorporated businesses and companies planning capital expenditure projects need to be aware of some time-limited reliefs. Timing capital expenditure to benefit from these reliefs can be financially beneficial.

Annual investment allowance

The annual investment allowance (AIA) is available to both unincorporated business and to companies. It provides immediate 100% relief against profits for qualifying capital expenditure on plant and machinery in the accounting period in which the expenditure is incurred up to the available AIA limit. The limit remains at its temporary limit of £1 million until 31 March 2023, reverting to its permanent level of £200,000 from 1 April 2023.

Most items of plant and machinery qualify for the AIA; the main exception being expenditure on cars.

Where the accounting period is 12 months in length and falls wholly within the period from 1 January 2019 to 31 March 2023, the AIA limit for the period is £1 million.

Where the period spans 31 March 2023, the AIA limit for the period is:

 x/12 x £1 million + y/12 x £200,000,

where x is the number of months in the period prior to 1 April 2023 and y is the number of months in that period on or after that date.

Consequently, the AIA limit for the year to 30 September 2023 is £600,000 (6/12 x £1 million + 6/12 x £200,000).

However, not all expenditure in a period spanning 31 March 2023 is equal. Where the expenditure is incurred before 1 April 2023, qualifying expenditure up to the limit for the period will be eligible for the AIA. However, a further cap applies if the expenditure is incurred in the period but after 31 March 2023. This is y/12 x £200,000. Only expenditure up to this cap qualifies for the AIA. Relief for expenditure in excess of that qualifying for the AIA is given as writing down allowances.

So, if a business prepares accounts for the year to 30 September 2023, its AIA limit for the year is £600,000. It can claim the AIA for expenditure of up to £600,000 if the expenditure is incurred before 1 April 2023. However, if it incurs the expenditure after 1 April 2023, only £100,000 qualifies for the AIA, whereas, if the business accelerates the expenditure to incur it on or before 30 September 2022 (so that it falls within the year to 30 September 2022), it can benefit from the AIA for expenditure of up to £1 million.

Where significant capital projects are planned, undertaking them sooner rather than later will mean maximum advantage can be taken of the temporary AIA limit.

Super deduction for companies

Companies can also benefit from a super-deduction of 130% of the expenditure when calculating profits. This is available in respect of qualifying expenditure on plant and machinery which would otherwise be eligible for main rate writing down allowance, subject to certain exceptions, the main one being expenditure on cars.

To qualify, the expenditure must be incurred in the period from 1 April 2021 to 31 March 2023.

The super-deduction is only available to companies; unincorporated businesses do not qualify. Where available, the deduction rate trumps that under the AIA. However, the expenditure must be incurred by 31 March 2023 to qualify.

50% first-year allowance

Companies can also benefit from a 50% first-year allowance for qualifying expenditure (excluding cars) that would otherwise benefit from special rate writing down allowances. This allowance can be useful if the AIA limit has been used up. Again, the expenditure must be incurred by 31 March 2023.