The Martini Mindset: Tax Considerations

October 13, 2020

When Simon Horsfield reminded me of the Martini advert, “any time, any place, anywhere” I was instantly reminded of my youth, not because I drank martini (I’m not that old!), but the slightly inappropriate advert, the roller skates, cheesy music, what some people refer to as an 80s classic.  With a large number of employees not having to attend central offices/ areas, people are looking at where they need to be – I’ve been to cities in the last 2 months and seen the transport system empty, the streets very quiet, shops closed (some permanently) & this was after we were all advised to return to work.  Business is returning, but a huge amount of people are working where they want, when they want and how they want.

Simon & Chris excellently put forward the legal and the immigration issues people need to think about, but what about tax?  Tax is often retrospective in nature, not initially thought about when making decisions; however, if you get things wrong, it can be costly. 

This article comments on both the national aspects and, more importantly from a risk perspective, the global implications.

The Global point of view

Tax is quite simple (until you read the rules that is!).  Generally, you pay tax (and social security) where you live and work.  Usually that is where your employer is, so nice and straightforward. However, what happens if you live and work somewhere different to where your employer is?  Well still relatively simple; you pay tax where you live and work.  But, if you are a corporate and your employees are all working (from home) overseas, well, those employees could just cause compliance risks to the company. 

Whether you need to consider the withholding tax obligations, social security requirements, or permanent establishment issues, every country is different, most have different rules and the double tax treaties aren’t exactly light reading, and we have treaties with all 27 countries in the EU!  Some of the aspects will depend on what the employees are doing, their seniority and how long they’ve been in the country etc.  Individual circumstances would need to be considered, is the employee overseas for periods of time (remaining resident in the UK), or full time (non-resident), but then what about domicile and where the employee wants to ‘settle’ longer time?

As Simon looked at under the Legal aspects, how do you know?  Will your employee have asked for permission, or have they just gone overseas and continued to work?  Does this mean you need to start reviewing IP addresses to check location of employees, or create a policy where employees must request to work overseas?  Either way, just ignoring the risk is not really an option, given the costs of fixing retrospective tax issues can be high, fines for non-compliance can be even higher, it’s something that corporates need to be aware of and manage.

What about the UK?

At the end of 2019 employees were at their offices with the benefits of work provided computers, screens, desks, chairs, even coffees!  Wind forward 12 months, people have created their own offices at home, whether dedicated studies, kitchen tables or stealing their child’s desk, lots of us have set up some form of home office.

This article doesn’t cover any of the funds or support for those losing their jobs or working restricted hours (that would be far too long!), but the Government have at least recognised the additional expense for people setting up home offices through their tax policy and made a few clarifications/ changes.

With any work expenses there are 2 ways to consider the tax issues:

  1. Employers can reimburse costs direct to employees
  2. Employees can seek tax relief direct from HMRC

Legislation provides an exemption for employer payments; however, it does not change the law on deductions for employees’ unreimbursed household expenses.  The circumstances in which an exempt payment (1 above) can be made are much less restrictive than the circumstances in which an employee is entitled to relief for household expenses (2 above).  Therefore, the fact that an exempt payment has been or could be made does not mean that the employee is necessarily entitled to relief for household expenses.

From 6 April 2020 employers can pay £6 per week (weekly paid) or £26 per month for monthly paid employees.  If employees incur additional costs than the amounts above, employers can reimburse them provided they can prove them e.g. additional heating and lighting costs, additional insurance, metered water, telephone, business rates (if applicable) etc.  As above states though, the employee may not automatically be allowed tax relief if the employer doesn’t reimburse the costs.

One of the temporary measures, announced back in May 2020, stated that any reimbursement by an employer for the cost of office equipment (due to Covid) is exempt from income tax and national insurance. The most common example we seem to be asked about is the office chair, especially for health and safety, better than a kitchen stool.  Thankfully, HMRC did confirm that if in the future the employee returns to work and retains the equipment (the chair!), no benefit in kind will arise at that point, so we won’t be seeing a mass return of chairs on public transport!

Other areas to keep a view on are items such as home insurance and capital gains tax.  Whilst not major issues now that could quickly change in the future if permanent home working becomes the norm. 

All in all, plenty to think about when you’re sipping your Friday night Gin (flavoured?!) and tonic, which is surely the 2020 equivalent to the 80s Martini?

Join our (virtual!) roundtable to discuss the legal, immigration and tax issues related to the Martini mindset next Tuesday at 10am.  You can register HERE.