Insights

Tax Talk: Hybrid working

Why your 'permanent' workplace makes a difference

read timeRead time: 3 mins
‘Hybrid working’ may be the new normal. But the tax implications are giving employers a new headache.

With almost all Covid-related restrictions lifted across the UK, many employers are embracing the concept of home working to which most employees have become accustomed. Despite the option to return to the traditional office-based workforce in unrestricted numbers, more and more employers are adopting ‘hybrid working’. Many believe this will become the new normal for employees.

What is hybrid working?


It’s an informal working arrangement that combines employees working some days in the office and some from home each week.  How much time an employee can work from home depends on business and personal needs. But this flexible arrangement seeks to yield the benefits that home working has delivered to many during the pandemic, whilst maintaining the collaborative team interactions an office provides.

A hybrid working arrangement is usually governed by company policy. It does not involve a change in an employee’s contractual terms in the same way that a flexible working arrangement would. This is important when considering the tax implications of hybrid working, especially on the key question of ‘where is an employee’s permanent workplace?’

Whether a location is considered to be a permanent or temporary workplace directly impacts whether any travel expenses (reimbursed or not) are subject to tax relief. But distinguishing between a permanent and a temporary workplace can be more complicated than you might think.

Permanent vs temporary


A workplace is considered ‘permanent’ if the employee attends it regularly in order to perform the duties of their employment, and if the workplace itself is not ‘temporary’.  Employees can have more than one permanent workplace if their employment requires them to attend more than one location often – and if there is a pattern to their attendance (for example, Monday to Thursday they work at location A, but on Friday they work at location B).

A workplace is considered to be temporary if the employee’s attendance there is only to perform a task of limited duration (no more than 24 months) or for a temporary purpose (for example, the site manager at location A is required to work at site B for six months to provide cover while the usual manager is on sabbatical).

Travel between an employee’s home and permanent workplace is considered as ordinary commuting and the employee should bear that cost personally. If an employer reimburses or pays for that commute, the amount would be taxable. 

The effect on travel expenses


Hybrid working arrangements potentially blur the line for many employees as to where their permanent workplace is on a given day of the week. If it is home, travel costs to the office could be tax relieved. If it’s the office, there is no tax relief on the commute.

The key point is whether, regardless of any policy on working arrangements, the reason for an employee’s attendance at the office is temporary ­– or just the normal performance of their role?

Employees who work in a hybrid manner may do fixed days at home and in the office and these may change from week to week as required. Any attendance at the office in this instance would be ‘in the performance of their duties of the employment’, so not considered ‘temporary’. So the office would be a ‘permanent’ workplace for the employee and there would be no tax relief on travel expenses between them on any day.

The contracted home-worker


Contrast this with someone who is contracted to work from home by their employer. They are only required to attend the office occasionally for team or client meetings, but there is no fixed pattern to their attendance. In this example, the office would be viewed as a temporary workplace. They are not needed in the office regularly to perform the duties of their employment as the employer has contracted for them to work from home. The home to office travel expenses would in this case receive tax relief – either claimable by the employee themselves or applied to reimbursement from the employer.

The issue of ‘temporary’ versus ‘permanent’ workplace has been under review by HMRC and the Office for Tax Simplification for some time. But they have made little progress on how to remove the ambiguity for employers. Hybrid working arrangements will make this more complicated for employers, and increase the risk that any reimbursed home to office travel expenses are considered taxable by HMRC.