Beverley Gibbs, employment taxes consultant for PSTAX, discusses the issues for employers

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The Coronavirus pandemic has highlighted the need for employers to look after the mental health and wellbeing of employees if they are to have happy and effective workforces. The social isolation for many while working from home, together with the anxiety caused by the pandemic, has meant that the mental health services within the NHS (National Health Service) have been put under increasing strain.

Employers have long-recognised the importance of providing help and assistance to their employees through a confidential employee helpline that offers welfare counselling and advice. This is generally provided to employees through an employee assistance programme (EAP). Many of us know about these programmes and the services they offer but may not be aware of the tax and National Insurance contributions (NICs) implications.

Although the provision of counselling is a chargeable benefit under general principles when provided by an employer, there is an exemption that covers certain welfare counselling services.

The exemption does not cover all types of welfare counselling and the counselling services that are included make it easy to stray outside of the exemption as it is tightly drawn.

The exemption is conditional on the benefit being made available to the employer’s employees generally on similar terms.

 

What is included

HM Revenue & Customs (HMRC) advises that the types of counselling that the exemption is intended to cover include the following: stress; problems at work; debt problems; alcohol and other drug dependency; career concerns; bereavement; equal opportunities’; ill-health; sexual abuse; harassment and bullying; conduct and discipline; personal relationship difficulties.

• HMRC then goes on to explain that, for the purposes of the exemption, welfare counselling is counselling of any kind except:

• advice on finance, other than advice on debt problems

• advice on tax

• advice on leisure or recreation

• legal advice.

Previously, the exemption excluded all types of medical treatment, but from 6 April 2020 some counselling services that are also classed as medical treatments have been included in the exemption.

The exemption now includes treatments such as cognitive behavioral therapy and interpersonal therapy where they are part of an employer’s EAP. It should be noted that these are very specific treatments and most medical treatment would not be exempt.

 

Practical issues

The issue for employers providing counselling services, from a tax and NICs perspective, is that some EAPs provide a wide range of services, some of which are exempt and some which are not. This would be manageable if the chargeable services could be apportioned against the exempt services. However, the exemption does not give any basis for apportionment, which results in the whole EAP being a chargeable benefit if it includes any services not covered by the exemption.

To prevent this from happening, HMRC advises that employers could consider separating out the two types of service into totally different schemes where possible. Where this is not possible, HMRC guidance suggests that ‘common sense should be applied’ where a minor part of the service is outside of the exemption in relation to all the other services provided.

However, applying such an approach does come with a few difficulties when the problem that is presented by an employee when contacting the EAP service crosses into territory that is excluded from the exemption. From a tax perspective, it is important that the main reason for contacting the service is one of mental health and welfare. An example of this would be where an employee contacts the service in distress and anxiety over a breakup with a partner, but during the counselling it is revealed that one reason for this is anxiety over not knowing to what they are legally entitled. If the employee were to be given personalised legal advice under the terms of the EAP, which is specifically excluded from the exemption, the whole EAP would potentially become a chargeable benefit. However, if it is to support the emotional wellbeing of an employee, the signposting to legal and financial information could be within the exemption.

Any advice given in this way must be secondary to the main reason for contacting the EAP service and any legal or financial information provided should be at a very high, general level that gives the employee a way to identify what their next step should be, outside of the EAP.

The example given above is one of many scenarios that could arise where interpreting and applying the rules is difficult and could lead to unintended tax consequences. Whilst there are no easy solutions, the starting point should be how the terms of the service are set out to employees, so it is clear what is and isn’t included.

 

Family and household members

Another area that can cause difficulties in its interpretation is the provision of welfare counselling to dependents and members of the same household as the employee. It is felt by many EAP providers that the exemption does not go far enough and is not as generous with the tax rules compared with many other countries. Most countries exempt from tax the counselling of dependents separately to the employee. In the UK, the exemption is intended for the employee and does not cover dependents and others. Couples and family counselling are included in the exemption, but face-to-face counselling that does not include the employee would be outside.

However, if there are issues in an employee’s home life this will often cause performance issues in the workplace. HMRC recognises this to some extent and limited services can be provided to an employee’s dependents and remain within the exemption subject to the conditions below:

There must not be a separate helpline number for spouse/partner/dependents.

Couple or family counselling is an acceptable clinical intervention, but a spouse/partner/dependent should not be offered face to face counselling on their own.

Spouse/partner/dependents should not be offered access to the legal information component of the service.

 

Volunteers

Another case where an EAP would be valuable to employers would be to allow EAP services to be available to volunteers, for example, special police constables and volunteers supporting victims and witnesses of crime. In some cases, volunteers are exposed to the same stresses and anxiety that employees have, as they are effectively performing the same job. The volunteer status of such individuals is important, as it means that travel expenses to the workplace are exempt from a tax/NICs charge. However, this could be affected if they receive work-related benefits.

An option for them to be included without it affecting their volunteer status would help both the volunteers and the organisations that use them.

‘Good’ employers take their responsibility for their employees seriously, and that responsibility extends to volunteers as well. The ability to include them in an EAP would demonstrate that responsibility.

 

EAPA guidance

In November 2008, the Employee Assistance Programme Association UK (EAPA) produced an information document explaining the boundaries for legal and financial advice and dependents counselling services which HMRC uses as part of its guidance. This was to help to define the exemption and give clear guidance.

However, this information document is now considered to be out of date, especially with regard to welfare counselling services for dependents.

It is widely felt that there is a need to both clarify and expand the current exemption to bring it up to date. As well as helping employers to maintain a productive and healthy workforce, it would also relieve some of the strain on NHS mental health services. PSTAX is involved in discussions involving the EAPA and gathering information regarding the coverage of EAPs with a view to making a case for the rules to be made more generous and clearer.

 

Summary

Although the tax exemption for welfare counselling is well-intentioned and useful for employers, it does come with certain practical difficulties in terms of interpreting the rules and is not as generous or flexible as it could or should be. Whilst it is hoped that these concerns will be addressed soon, great care should be taken in the meantime to ensure that there are no unwelcome surprises should an employer’s arrangements be reviewed by HMRC. 

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