The Office of Tax Simplification (OTS) has issued its last-ever report, ‘Hybrid and distance working: exploring the tax implications of changing working practices’. Key findings include a requirement for better guidance from HMRC on existing reliefs and rules and a demand for a review of tax reliefs in this area.
The report is an 'own initiative' report and has been issued following a Call for evidence published in September 2022 which was intended to be a high-level evidential review of:
- The current extent of hybrid and distance/Home working, and whether this is likely to increase.
- Whether current and future trends involve more working across borders.
- Whether changes in working practices give rise to any tax complexity or challenges for employers and employees, as well as small businesses.
The short amount of time available for responses to the call for evidence survey (of which there were 425), to meet with stakeholders (39 meetings were held), and to produce the report, has meant that the OTS has not included its own recommendations. It has instead reflected calls from respondents for change and improvements. Not enough evidence was received for any comments to be made on hybrid working by the self-employed.
The report does not consider traditional, permanent ‘work from home’ arrangements or expatriate engagements, where the employer chooses to post the employee to an overseas business location, as there are long-standing rules and guidance already in place for this.
- Businesses see hybrid working as here to stay with 98% of respondents being offered the ability to work at home at least some of the time and 70% saying they would be less likely to take a job that did not offer some level of home working.
- Respondents saw opportunities for government to reduce energy use by encouraging employees into offices. Existing green initiatives around Cycle to work and Workplace electric vehicle charging points were identified as needing amendment if they were to continue to incentivise behaviour.
- The main issue raised by UK employers was the need for a review and simplification of the expense and benefits system and particularly the Permanent and temporary workplace legislation.
- The 40% test was thought to be no longer appropriate to current working practices, and the 24 months test too short a period to incentivise workforce mobility.
- Many of the concepts are tied to more traditional ways of working and not compatible with hybrid working where more guidance is needed.
- There was less concern around individual tax residency as the Statutory residence test and tax treaty network were seen as clear with helpful government guidance.
- Cross-border social security and payroll implications were seen as more complex. Businesses want to see improved HMRC processes and turnaround times, more PAYE relaxations e.g. for short-term visitors to the UK, and clearer guidance and online tools.
- Allowing employees to work abroad for short periods, such as 10-30 days per year, is seen by many employers as a crucial business policy to attract and retain staff though it is not being taken up by many employees. Businesses are also allowing a small number of individuals to live and work overseas on a long term basis where they are key personnel or have specialist skills.
- The UK’s position on issues such as Permanent establishment were seen by businesses as unclear where staff are choosing to work overseas especially where this was for short periods. Concerns here were more about the resulting administrative burdens rather than additional tax costs.
- Multinational businesses want to see the UK taking a lead on how permanent establishment and transfer pricing interact with staff who choose to work overseas for personal reasons and longer term. Where possible businesses would like the UK to set out unilateral safe-harbour guidelines that can be clearly understood.
The OTS is being abolished by the government next year.
Useful guides on this topic
Working from home (employees)
What expenses can employees claim for homeworking? Are the rules the same for the self-employed? How do you make a claim? How does the COVID-19 easement work?
Working from home (directors)
What expenses can I claim for working from home? The same rules apply to home working directors as other employees. A director is more likely to be able to charge rent and there may be some additional issues and complications by virtue of their office.
Working from home: Homeworking rates and allowances
What tax-free allowances are there for working from home? What allowances can be paid to homeworking employees?