Improving tax relief for those who work from home could place a considerable economic burden on the State, given the widespread support from both employers and employees for remote working, a new paper says.
The Tax Strategy Group, led by the Department of Finance, says that with as many as 95 per cent of remote workers looking to continue working away from the office in some form, the case for enhancing reliefs is weak from an economic point of view.
Enhancements would not have any significant effect on encouraging more employees to avail of remote working, should they be offered it by their employer, it argues.
However, the report adds that, in the context of Government policy to facilitate remote working, changes to the current tax arrangements could underline and reinforce support for it.
The new paper considers a number of options for tax policy change ahead of Budget 2022. These include legislative amendments, the introduction of a per-diem tax relief for working from home, a bespoke tax credit for remote workers, enhancement to the existing arrangements, increases to the pay as you earn (PAYE) and earned income credit, and "super" accelerated capital allowances.
According to rough estimates obtained by the Tax Strategy Group by combining Eurostat and Revenue data, some 875,000 people in the Republic are classed as remote workers. This is up from an estimated 600,000 prior to the pandemic.
The document notes that the rate of adoption of remote work accelerated rapidly during the pandemic, with the number of people working away from the office, climbing from 22 per cent in 2019 to 38 per cent by the end of 2020. It adds that, with both employers and employees expressing an interest in continuing with it in some guise, remote working is here to stay.
“It is not clear that there is, in fact, a market failure that requires State intervention as both employees and employers already appear to support the move towards a remote working model, with evidence of such moves under way,” it says.
“Given the scale of support for some degree of remote working, there is likely to be a very large deadweight factor associated with any new tax expenditure to incentivise remote working at employee level.”
Cost-neutral option
One cost-neutral option proposed by the group is that current tax arrangement for remote working be formalised by putting forward legislative amendments so that they are placed on a statutory footing. This would have the benefit of providing certainty to employees and employers, it says.
A per-diem working from home tax relief could “further contribute to the transfer of the burden of employer-related costs from the employer to the State”, it says.
Bespoke tax credits, while attractive for remote workers, cost the State approximately €25 million for every €50 of tax credit provided, making them costly. Enhancing the current tax arrangement meanwhile, which allows for relief on utilities, would be cheaper but would not necessarily go down well with workers, most of whom would prefer an “across the board” credit.
A proposal of a €50 increase to PAYE and earned income tax credits, which would cost the exchequer an estimated €85 million, could be problematic as not everyone can avail of remote working.
Lastly, an accelerated capital allowance, which could cost €38 million in its first year, would face administrative and legislative difficulties and any relief would only be of benefit for future expenditure only.
