How are employee and corporate taxes affected by the Covid-19 pandemic? Michael Rooney, tax partner at EY, answers some key questions.
There have been many changes to our working lives over the past few months, and one area that some of us are likely grappling with is tax.
To learn more about the impacts of Covid-19 on tax – whether it’s corporate or personal, claiming relief or government subsidies – I spoke to Michael Rooney, a tax partner at EY Ireland.
1. Working internationally
For people from outside of Ireland who have returned to their home country to work remotely because of Covid-19, there are a number of things to be aware of, Rooney said. Ireland has a vast amount of people working here from other parts of the world, especially in the tech industry, he said, so it’s important that they’re up to date on any tax implications.
Such people, he explained, could be creating issues around anything from immigration, tax and payroll to whether they’ve got a work permit to be in that country.
“And also, there are some tax advantages and planning, like the Special Assignee Relief Programme, that are actually dependent on the person being a resident in order to claim the advantages,” he added. “So that’s an issue that a lot of companies are grappling with.”
This is also an issue from a corporate tax perspective, Rooney added, because companies that are resident in Ireland have to make their decisions in the country and have their management team based here, too. With senior executives travelling home to overseas locations because of Covid-19, he said, other types of corporate tax problems can crop up.
“It’s a wider issue that probably most people didn’t think would arise. For the moment, I think it’s probably not as big an issue because there’s a principle called force majeure, which really kind of says that if you’re stuck in another country because of a crisis like this pandemic, it won’t be a problem for you from a tax perspective.
“However, once countries start opening up again, it’s going to create more issues for employers trying to see, you know, will their employees actually come back to the location they’re supposed to be in? And if not, what are they going to do in terms of tax or social security or a payroll issue for the company?”
2. Wage subsidies
In terms of employees who are continuing to work in Ireland, Rooney said that basic salaries should not change because they are working from home unless they are receiving the Government’s Wage Subsidy Scheme. If that’s the case, he said, workers may well be seeing a difference in their net salary.
“For companies giving a temporary wage subsidy, if they’re giving a top-up payment, they cannot give the same top-up payment as they would normally give to an employee,” he explained. “They can only give it to the employee as gross payment and there’s going to be tax deducted on that, so that will be less than they would normally have in their pay packet.
“So that’s an issue for companies in terms of communicating with employees and letting them know that their tax may be affected by reason of Covid-19.”
3. Company cars
For employees who must travel for work and own a company car, the implications of Covid-19 and working from home may seem unclear. Ordinarily, company car owners are charged tax based on the number of kilometres they drive. But with government restrictions in place and offices closed for the foreseeable future, those cars may be parked outside employees’ houses and are not being used.
So, what does this mean in terms of taxes? Revenue has issued guidance here, Rooney said. “You can either give back the car temporarily or you can make sure it’s stationary and take a record of it, saying that you haven’t driven any mileage during that period.
“And that will actually get around some of the kind of tax issues that you may be facing in respect of this. But it’s something that companies are really looking at and trying to see if they can help their employees with.”
4. Claiming tax relief
According to Rooney, employees can claim tax relief for heating and lighting if they’re working from home. Workers are able to claim a deduction of 10pc on those expenses. So, if your yearly home heating and lighting bill comes to €1,000, this means you could make a deduction on your tax return for €100.
“Like anything, really, employees need to keep records of what their expenditure is, keep records of what their home heating and lighting bills are and keep track of the number of days that they’re actually working at home during the crisis,” Rooney advised.
“Obviously, you can only claim for workdays. You can’t claim for holidays and you can’t claim for any kind of weekend workdays, either. So companies are looking to see how they can manage this through the payroll or what’s an easy way of ensuring that either on a monthly or a quarterly basis, the individual feeds in this information so that they can make a payment to add to the employee office allowance.”
5. Working-from-home allowance
The other route companies can take to provide financial relief for employees is a working-from-home allowance. This is another Revenue-led initiative for e-workers and amounts to €3.20 per working day, paid to you through your employer.
“I did a survey with clients about two months ago when this first started and none of my clients were thinking of paying this homeworking allowance because they were thinking this would only last for, you know, five or six weeks and then everyone would be back in the office,” Rooney said.
“Now that it has become clear that people are going to be working at home for a lot longer, a lot more companies are looking to put in place this homeworking allowance to try and actually give a payment to their employees in respect of that.
“And it’s not just the allowance. You can also provide computers. You can provide printers. You can also provide office furniture to employees, and they won’t create a benefit-in-kind for your employees.”
Rooney added that the homeworking allowance in the UK has been increased to the equivalent of £6 per day. “I’d really like to see if we could look at paying something similar in Ireland,” he said.
6. Employee amenities
One of the most common perks provided by employers is a canteen with either subsidised or free food. When working from home, Rooney said, employees now have that added expense to consider, too.
Many of Rooney’s clients have been wondering whether a voucher system might work. “So, companies are trying to be a bit more creative in that,” he said. “There’s a way of doing it more tax efficiently because, currently, there is a voucher you can pay to employees – the One4All voucher – which is tax-free up to €500. But it’s only one voucher you can give.”
An ideal system would provide employees with vouchers to spend in their locality, he said, which would have a “knock-on effect in trying to kickstart the local economy”.
Want to know more?
If you’re hoping to do some further reading around the implications of Covid-19 on tax, Rooney had two suggestions. Firstly, he mentioned this e-working brief issued by Revenue in March, which is a good source of information on how to claim tax relief, among other things.
He added that EY has issued a number of tax alerts in recent weeks in response to Covid-19 changes. You can find out more about the alerts on the EY Ireland website.