01 March 2021
A benefit in kind or a benefit for the whole community? Beverley Gibbs, employment taxes consultant at PSTAX, discusses the taxation issues and suggests that there is precedent for HMRC and the Treasury to extend concessionary treatment
It is common practice for many employers to offer seasonal flu jabs to their staff every year. This is especially true of public bodies, where staff illness can have a serious impact on services to the public. This is generally done by contracting with a supplier to come in and give the vaccinations in the workplace or bulk purchasing vouchers for staff to use at a pharmacy.
As readers may know, the tax treatment of a flu jab, if contracted for in this way, would generally qualify under the trivial benefit rules and be exempt. There are four conditions that must be met for a benefit to be considered ‘trivial’:
it cost the employer £50 or less to provide
it isn’t cash or a voucher exchangeable for cash
it isn’t a reward for the employee’s work or performance
it isn’t in the terms of employee’s contract.
If a benefit meets all the four conditions, no tax or National Insurance contributions (NICs) are due and there are no reporting obligations.
However, 2020 has not been a normal year. The pandemic has been challenging for organisations in many ways and the health and safety of employees has had to be an employer priority. Since the summer, the government has been encouraging everyone to have a flu jab, especially those in the front line, to prevent the National Health Service being swamped with flu patients if, and when, the second wave of Covid-19 struck. This has led to a chronic shortage of the flu vaccine and many employers, especially in the public sector, could not carry out their normal programmes of mass vaccination of staff in the workplace or bulk purchase vouchers.
...the government has been encouraging everyone to have a flu jab, especially those in the front line...
As a result, a very large number of employers have had to ask relevant staff to find out where they are able to obtain a flu jab, pay for it personally and claim reimbursement of the costs through expenses.
Although the flu vaccine would normally be treated as exempt under the trivial benefit rules, the exemption cannot apply to cash reimbursements. Therefore, employers who allow these claims are, in strictness, required to deduct PAYE (pay as you earn) income tax and class 1 NICs on them. This would, of course, result in the employee being out of pocket. The reimbursement could always be grossed up to ensure that the employee did not suffer the tax/NICs on the cost of the flu jab, though this would require time-consuming manual intervention for payroll and would be very expensive for the employer.
An alternative to grossing up through payroll would be to use a PAYE settlement agreement (PSA) to meet the tax/NICs costs arising on the reimbursements. However, it should be noted that a PSA would not normally be available for a cash sum. Using a PSA would significantly increase the cost of the flu jab to the employer, with a £14 flu jab costing an additional £5.91 in grossed up tax and NICs for a basic rate taxpayer and an additional £12.55 for a higher rate taxpayer. Given the thousands of staff likely to require flu jabs, this would cause significant and unbudgeted extra costs for the public sector arising directly from the Covid-19 pandemic. The government has consistently promised that this would not happen.
PSTAX has identified this issue as significant, not only because of the extent of the impact but also because of the sensitivity around the vaccine during the pandemic and the knock-on implications for public health if frontline workers are discouraged from getting the necessary vaccination. Therefore, PSTAX approached HM Revenue & Customs (HMRC) on clients’ behalf to ask, for the current financial year at least, that flu jabs can be treated as exempt from tax/NICs regardless of how they are obtained.
There was an outcry when, on 6 July HMRC announced that Covid-19 tests purchased by an employer would be treated as a benefit in kind. The guidance disappeared the next day. By 9 July, it was reversed, with the HMRC guidance and impending legislation now stating that if an employer is providing antigen testing kits to employees to test, outside of the government’s national testing scheme, if they have the virus either directly or by purchasing tests that are carried out by a third party, no income tax or class 1A NICs will be due. These tests had to be covered by a specific measure as they cost more than the £50 trivial benefit limit. The legislation covering this makes clear that the exemption applies also to reimbursement of costs. Given this recent history, we would hope that a similar common-sense approach be taken to enable employers to reimburse the cost of flu jabs, without tax/NICs consequences.
...allows staff working from home to be reimbursed the cost of office equipment during the current tax year without a tax/NICs liability...
There is of course a new vaccine in town. While the Covid-19 vaccine is currently only available through the NHS, as more vaccines come online there is a real prospect that they will become commercially available relatively quickly. This is likely to cost employers much more than the £50 trivial benefit limit and will therefore be classed as a benefit if employers provide it to staff or reimburse the cost; that is, unless the Treasury instructs HMRC to give a similar concession.
There is another precedent for a one-off concession of this nature; for example, the measure introduced regarding the purchase of home-working equipment. This allows staff working from home to be reimbursed the cost of office equipment during the current tax year without a tax/NICs liability arising. We believe that there is every justification, in the current climate, for HMRC to apply similar concessionary treatment to the reimbursement of flu vaccinations and, when available, the Covid-19 vaccine.
HMRC is currently looking at the arguments that PSTAX have presented to them on behalf of our clients, and we hope to have a favourable answer by the time you read this article.
Featured in the February 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.