Extension of employee benefit tax breaks welcomed

The government is extending income tax exemptions for eye tests and glasses, flu vaccinations and home working equipment, to include costs reimbursed by employers.

This decision has been very much welcomed; however, there are calls for the government to go even further.

Tax body previously recommended these changes

The Chartered Institute of Taxation (CIOT) has previously recommended introducing these changes and says they are pleased to see that the government is acting to remove from taxation low-value benefits that are a common part of modern working life.

However, the CIOT believes that tax exemptions should apply equally to employees’ benefits where the cost is reimbursed by their employer as where their employer provides that benefit directly.

Under current rules, a range of benefits-in-kind (for example, health screenings and medical check-ups) are exempt from income tax and National Insurance on the employee if they are paid for directly by employers, or via a voucher scheme arranged by the employer.

However, if the same benefits are paid for by an employee and later reimbursed by their employer, the reimbursement is treated as part of the employee’s taxable earnings, and they find themselves facing an additional tax charge as a result.

Ellen Milner, CIOT Director of Public Policy, explained, “Whether a benefit-in-kind or expense is tax exempt should be determined by its nature rather than being based on whether the employer directly pays for it or reimburses an employee who has paid for it. This difference in tax treatment can particularly affect smaller employers who, for example, may find it harder to set up corporate accounts or enter into voucher agreements with suppliers to pay for minor benefits directly.

“So, while these changes are welcome, we think the government should go further and remove this anomaly so that employer reimbursements are treated in the same way as directly provided employer benefits and are eligible for the same exemptions. This would simplify life for businesses, employees and HMRC.”

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